Will Natural Gas Be The Next To Rally?

It’s hard to get overly excited about natural gas when inventories are 22% above their five-year average and 31% above last year’s levels, and the gap between current inventories and historical averages has been rising steadily throughout the year. However, while the fundamentals aren’t necessarily attractive, the historical relationship between the price of natural gas and oil is nearing record extremes.

With oil nearing 70 and natural gas below four, the current ratio between the two commodities is now over 18. Following prior periods when the ratio went above 18, while natural gas hasn’t always rallied, it has always outperformed oil. Additionally, as we near the end of the second quarter, natural gas is entering what has historically been its best quarter of the year. As shown in the chart below, the commodity's average return (using the front month futures contract) during the third quarter of the year has been 12.95% with positive returns 63% of the time.

Inflation and Oil Prices: Our Next Move

Inflation and Oil Prices: Our Next Move

Always follow the oil market closely, because it will impact the fundamentals of many businesses — including those we are selling short.

Drivers in the U.S. no longer determine the global price of oil. So oil prices can remain high despite a weak labor market — as we saw in the 1970s. If this winds up being the case, it’s bad news for owners of financial and consumer stocks and good news for owners of energy stocks.

Andy Xie, formerly of Morgan Stanley, is a great strategist who, while most other economists sought to justify the housing bubble, warned of the unsustainable U.S./China vendor finance trade model that grew so rapidly between 2001-2008. He recently wrote an article for Caijing magazine on the factors that might drive oil prices in the future. He writes:

Conventional wisdom says inflation will not occur in a weak economy: The capacity utilization rate is low in a weak economy and, hence, businesses cannot raise prices. This one-dimensional thinking does not apply when there are structural imbalances. Bottlenecks could first appear in a few areas. Excess liquidity tends to flow toward shortages, and prices in those target areas could surge, raising inflation expectations and triggering general inflation. Another possibility is that expectations alone would be sufficient to bring about general inflation.

Oil is the most likely commodity to lead an inflationary trend. Its price has doubled from a March low, despite declining demand. The driving force behind higher oil prices is liquidity. Financial markets are so developed now that retail investors can respond to inflation fears by buying exchange-traded funds individually or in baskets of commodities.

Oil is uniquely suited as an inflation-hedging device. Its supply response is very low. More than 80% of global oil reserves are held by sovereign governments that don’t respond to rising prices by producing more. Indeed, once their budgetary needs are met, high prices may decrease their desire to increase production. Neither does demand fall quickly against rising prices. Oil is essential for routine economic activities, and its reduced consumption has a large multiplier effect. As its price sensitivities are low on demand and supply sides, it is uniquely suited to absorb excess liquidity and reflect inflation expectations ahead of other commodities.

The Chinese government is sending strong signals to its banking system that it wants lending to slow down from its blistering pace. It remains to be seen whether this will actually result in a contraction in Chinese bank lending or whether lending may just shift from one sector to another. If I had to guess, I think oil prices will have a sharp correction this fall as Chinese stockpiling slows down and as oil and refined product inventories remain more than adequate to meet sluggish U.S. demand.



But this correction will offer trading and investing opportunities on the long side. As you see in the two charts below, the linkage between oil prices and U.S. inventories during the entire post-2002 bull market was not as close as you’d expect:




Here’s why I think a correction in oil prices will offer a buying opportunity: Inflation fears and stabilizing in global demand are not the only reasons the price of oil has doubled from its lows. Oil prices are up because the marginal cost of new supply — including from Canadian tar sands and from under thousands of feet below the ocean surface — is so high.

To Andy Xie’s important point about oil as an inflation hedge, I’d add that OPEC planners understand that they are trading a scarce, extremely energy-dense, nonrenewable, depleting asset for paper money. They also are beginning to grasp that indebted oil importers plan to ease their debt burdens by employing the heavy guns in the inflation arsenal: “quantitative easing.” So their portfolio preferences will shift away from government paper and toward retaining scarce oil in the ground for future revenues. In other words, “Why should we trade oil for dollars now if we receive higher prices five years down the road?”

This is just one of the many intricacies governing how the global oil market operates, and it helps explain why those who are perpetually bearish on oil prices waited for years and years for a rational, free-market supply response to higher prices that never arrived in force. That is, until last fall’s panic brought demand far enough below supply that prices crashed. Now, the conventional wisdom says that several million barrels per day of spare OPEC capacity will keep a lid on prices for years. We may discover by next year just how quickly this alleged spare capacity will come back online, and at what price.

The question then becomes why should national oil companies rush into the risks of making the enormous capital investments necessary to maintain production — let alone grow production. Nancy Pelosi and Ben Bernanke are not promoting policies to make energy cheaper; in fact, their playbooks virtually ensure the opposite. Privately owned exploration and production (E&P) companies that take smart risks will be the ones that deliver more supply at lower prices to help ease supply constraints.

Now, when you consider how the U.S. economy currently functions, you come to understand that rising energy prices induce enormous headaches for practically every consumer and business. Call rising energy prices a “deflationary force in the real economy” if you like. The point here is the irony of the situation: The Fed and Treasury are trying to reinflate a deleveraging private economy, and much policy could wind up accelerating the deleveraging process by adding pressure to the prices of nondiscretionary items like food and energy. After all, these are both global commodities, and capacity in these sectors is tighter than most market participants realize.

Bottom line: There is no easy, painless way out of a credit-financed asset bubble that artificially pumped up consumption. This artificial growth in consumption prompted entrepreneurs to misallocate resources into unproductive sectors that were temporarily pumped up by what looked like sustainable demand. Meanwhile, there are many sectors, including oil and gas, that have been underinvesting relative to the long-term global demand for mobile, modern lifestyles.

Sure, oil prices could correct sharply this fall as traders panic about a temporary glut in aboveground supply at storage terminals. But to use manufacturing terms, it’s the “raw material” and “work in process” inventory that really matters. That type of inventory, sitting higher up in the supply chain, is much tighter than the “finished goods” inventory sitting in storage terminals like Cushing, Okla. I expect we’ll see this tightness reflected in prices by 2010, even if demand remains stagnant.

Production capacity in oil and gas looks plentiful right now, but capacity naturally falls every year, and requires hundreds of billions in global capital expenditures just to keep supply steady. According to an exhaustive analysis published by Neil McMahon of Bernstein Research on Aug. 10, non-OPEC oil supply will keep declining in the coming years, despite healthy levels of investment. Outside of OPEC (where information regarding capacity and investment plans is murky at best) explorers are targeting smaller formations, as production from giant, decades-old fields declines. McMahon writes:

In the long term, we believe that oil prices will increase in line with the marginal cost of supply, which continues to rise as the complexity of new wells increases and production rates from established fields decline. Basically, not enough significant discoveries have been made in non-OPEC countries in recent years to help the supply situation before 2015. Additionally, flow rates from the few discoveries that have been made do not give rise to much optimism and, as in the past, the drop in absolute oil demand will be offset by rapidly declining mature field production with the recent fall in industry spending. So the continued decline in non-OPEC supply will provide an additional support for prices, as it feeds through to OPEC spare capacity. We believe that 2010 will see the next inflexion point in prices, as OPEC spare capacity begins to decline and demand shows positive growth for the first time in a number of years and we expect to see oil average $80 in 2010, $103 in 2011, $111 in 2012, and increasing to $140 in 2015.

You can imagine what this type of price trajectory will do to U.S. businesses that rely on cheap fuel, and have no ability to push through price increases. Considering how many more trillions of U.S. dollars will be floating around the global economy in 2015, and savers’ willingness hoard them declines, $140 per barrel might be conservative.

Global oil production capacity, rather than demand, will eventually drive prices. Bernstein projects 2020 oil production capacity will be about the same as it is now: 85 million barrels per day. We must consider net exports too; the global trade flows of this oil will certainly change. Over time, more tanker shipments will be diverted away from the U.S. and Europe and head to Asia. Also, in recent years, OPEC countries have been consuming more of their own product at home. Plus, the Chinese government has shown that it will beat any and all comers in the competition to secure supply under long-term contracts.

Regards,
Dan Amoss

China Is About to Buy a lot More Silver...

By Matt Badiali

Two years ago on August 21, China's government allowed its citizens to invest in an entirely new asset. It allowed them to invest in Hong Kong-listed stocks.

Hong Kong is a special region of China. It's one of the most dynamic, capitalistic places on Earth. The move from the government was a move toward "investment freedom" for the Chinese people.

On that day, Hong Kong's benchmark stock index rose 8.74%. Over the next two and a half months, it skyrocketed from 11,000 to over 20,000. It was a chapter in a story that you should get used to over the coming years: When the Chinese decide to invest in something, it causes giant ripples across the world.

This sort of situation is starting to happen again: This time it's happening in precious metals... especially silver.

The Chinese have a centuries-old affinity with silver. It began in the 1500s with the explosion of trade with Mexico via the Spanish galleons. These sailing ships were the super-tankers of their age. They made one voyage per year, carrying tea, silks, and spices from Asia to Mexico. The ships returned to Asia with gold and silver. After the Chinese threw off imperial rule in 1912, the country used silver money. Today, the Chinese word for "bank" means, "silver movement."

And now that China is becoming one of the richest, most dynamic capitalistic countries on Earth, this story is about to take a modern twist. The Chinese want silver again.

Thanks to a decade of wealth accumulated by regular Chinese citizens, there is plenty of cash to chase good investments. As the famed global investor Jim Rogers points out, these people are the best capitalists in the world. They are great savers. Chinese people want their money to work for them... so they invest.

I recently watched a China Central Television piece on gold investing... According to the program, there are some 400 million households in China, with an average ownership of about 0.1 ounces of gold. The average gold ownership in most emerging countries works out to about 1 ounce per household. The Chinese are beginning to make up that gap. From 2006 to 2007, domestic demand for gold rose 60% to around 700,000 ounces. Experts continue to urge citizens to put 3% to 5% of their net worth in precious metals.

Chinese government statistics show the average urban Chinese household has about $1,300 in disposable income to invest. While that doesn't seem like much, when you add up all those households, there's about $36 billion that could move into the next big investment opportunity – precious metals.

The government is now actively encouraging its citizens to buy gold and silver. They recently unveiled silver bullion for investing.



The premise is that gold was 50 times more expensive than silver in 2007... but is now 70 times more expensive.

The government is promoting silver bullion as an investment for regular citizens. And remember, a bunch of Chinese students laughed at U.S. Treasury Secretary Tim Geithner this year when he claimed the dollar was safe. The Chinese know the value of real assets... real money like gold and silver.

What does this mean for silver prices? It's impossible to say. But here's a little math that interests me. According to the Silver Institute, demand for silver in 2008 (for industry, jewelry, and investing) was 832 million ounces. At today's price, that's an $11.5 billion market... or about 1/3 the capital available in China alone.

The most important thing to understand about this situation is the Chinese people become freer every time the government loosens up a restriction. These people couldn't legally buy silver bars before. Now, they can. They're becoming richer... and they will continue to do so for decades.

Good investing,
Matt Badiali

P.S. The Chinese government isn't just urging private citizens to invest in silver. It's also conducting a huge program to develop its domestic mining industry. And when the Chinese government gets behind an investment, it almost always skyrockets. To learn how to make the biggest gains from the coming China silver craze, click here.

Better than U.S. Gold

Dear Reader,

Before you buy any more gold... please read this.

Our resident geologist says buying a unique type of Chinese Gold could outperform U.S. gold over the next few years by 100% or more.

It's an eye-opening report, which I've included below.

You'll also find instructions on how to take advantage of this situation.

Good Investing,

Brian Hunt
Editor in Chief.

Why Chinese Gold could
pay 100% MORE than U.S. Gold over the Next 2 Years

Don’t by another ounce of gold until you read this report.

In short: The Chinese government has created a secret new gold investment. The last time the gov’t did something like this, investors could have made 1,084%



Dear Reader,

China has gone crazy for Gold.

In April, for example, the government's Foreign-Exchange Agency announced the purchase of an additional 16 MILLION ounces for state coffers.

And just a few months earlier, National Geographic Magazine reported that for the first time China had surpassed the U.S. as a buyer of gold jewelry.

But here's the amazing thing few investors realize...

Behind the scenes, in a move that has gone almost completely unreported in the Western press, the Chinese government has created a gold investment that could dwarf the returns of gold bullion, ordinary gold stocks, or any other type of gold investment you've heard of before.

I wouldn't be surprised if you see gains of 1,000% or more.

I realize that may sound impossible, but consider...

This is not the first time Beijing leaders have secretly created such an opportunity:

In the late 1990s, the Chinese government created two similar investments. One (to help the local insurance industry) went up more than 625% in just a few years... the other (to aid the energy sector) has gone up about 1,084% over a similar period.

But this is the first time Chinese officials have intervened in this way in the gold markets—and I expect the result will be a windfall for savvy investors over the next few years.

After all, gold is one of the only "buy and hold" investments in the world right now. It is also the only investment in the world that has gone up EVERY YEAR for the past five years straight. And, remember, China remains the fastest-growingeconomy on the planet, with the wealthiest government on Earth.

The point is, if you are interested in an extremely lucrative way to own gold, right alongside the Chinese government, this is something you should consider.

I can just about guarantee you will not hear about this opportunity in any mainstream media publication. I heard about it only because of a contact in the industry, who met recently with officials in Beijing.

I expect the word will soon get out. But until then, you have an incredible opportunity. Let me show you what's going on...

The most reliable

way to see 500%+

There's been perhaps only one truly reliable investment trend over the past 20 years.

Bull markets have come and gone. Stocks have done well during some periods... and crashed during others. Same with bonds and real estate.

But there's one type of investment that has continued to reliably pay an absolute fortune.

In short: When the Chinese government creates a new investment vehicle, by spinning off part of a government entity, early investors have made a killing.

When the Chinese government realized they needed to improve their insurance industry, for example, they broke up state-run agencies, and created China Life Insurance, the only company with a national license. Investors have made 625% in the past five years.

When the Chinese government realized they needed more industrial supplies for manufacturing, they spun off state operations and created a firm called Chalco... which paid more than 2,100% over a six year period. They did the same with mobile phones, turning state interests into a public company that has provided 583% gains since becoming available.

And they did the same thing not too long ago in the oil industry...

First oil... now Gold

In the 1980s there basically was no "oil business" in China.

But the economy at the time was growing nearly 10% per year... and the government realized they had to become a major player.

The first thing they did was open up their own reserves for exploration. A government-created and partially government-owned business called China National Offshore Oil Corporation received an exclusive right to explore, develop, and produce oil with overseas partners. Investors have made more than 837% on this company since 2001.

Next, the Chinese government rewrote the energy rules, injected billions of dollars of capital, and in 1999 spun several new businesses out of the state-run China National Petroleum Corporation (CNPC).

** PetroChina, for example, was set up with the help of Goldman Sachs. Early investors in Petro China made 1,084% in about four years.

** Another spin-off from the state-run oil monopoly was a company called Sinopec. The government still owns 70%. And investors who got in early made about 960% over a seven-year period.

The point is, China woke up to the fact that they needed to own and control as much oil as possible, to grow the economy and become a world power.

And now...

What the Chinese government did for oil over the past decade... they are today doing for gold.

This is a huge development.


You see, most investors don't realize that China is now the world's largest gold producer (they passed South Africa last year).



China is also one of the few countries in the world where known gold reserves are increasing... not shrinking.

That's why I predict that investing in China's government-created and partnered gold companies will be one of the easiest ways to get rich over the next few years.

Let me explain how it's all going down...

China's Secret Solution

For essentially the past 50 years, no one was allowed to touch gold in China... except for the government.

But today, that is changing... and in a hurry...

In short, the Chinese government wants more gold.

They realize gold is one of the only buy-and-hold investments in the world right now. And they've got a lot of money to spend... nearly $2 Trillion according to a recent report in The New York Times.

So the Ministry of Land and Resources has completely rewritten the country's mining laws (known as the Minerals and Resources Law) to encourage local and foreign companies to explore for and produce more gold.

The government has also recently created the Shanghai Gold Exchange, to allow anyone to trade gold, on the open market, without government interference.

But most importantly for you and me, the government has quietly gotten behind a handful of publicly traded gold companies.



I believe these deals could make you extraordinary amounts of money over the next few years.

Let me show you the specifics, and why I believe this could make you so much money.

Remember, this is all happening incredibly fast in China—just like it did in the oil industry, where investors in Sinopec made 360% in 10 months... investors in PetroChina made 140% in less than year... and investors in China National made 102% in five months.

Twenty years ago, China produced an inconsequential amount of gold. Today, China is the #1 gold-producing nation in the world...

And these new government deals are poised to make some smart investors quite wealthy, very soon...

Investment #1: Gold Partnering
with the government

When it comes to gold mining in China, it's a whole different world than what we're used to in America...

There's no such thing as a NI43-101 disclosure form for mining companies, like we have here at home. And instead of a handful of giant companies running the industy, like we're used to, it's basically thousands of small operations scattered across the country.

In short, it's like the American Wild West.

That's why having the government on your side can make all the difference in the world...

For example, there are two very small gold mining companies with government connections that have a very good chance at making you several times your money in the next few years...

GOVERNMENT GOLD PARTNER #1: Recently, the Chinese government helped create, and took nearly a 50% ownership stake in, a very small gold mining company, in order to develop a handful of the country's most promising gold projects.

Already, the company has two producing properties, and exploration permits for two of the countries most gold-rich, untapped areas.

What makes this investment so appealing is that normally, when you deal with investments in China, there are certain political risks.

Will the government approve your projects? Will you be allowed to explore and develop the most potentially lucrative territories?

But for this small company, the political risks are virtually non-existent. After all, the company is nearly half-owned by the government, so obviously it will have huge advantages.

That's why I believe there's a very good chance this company will eventually become one of the world's "major" developers. And if that happens, you could easily make 2,000% on a small investment stake today.

We saw what happened when the Chinese government got behind several promising oil companies. Investors made more than 1,000% gains over a several-year period.

Well, now I believe there's a very good chance the same thing is going to happen to this company in the gold business.

Consider that right now, this company sells for well under $5 a share. It was formed just a few years ago... and now has several projects in production, and several more on the way.

What's incredible, is that this company has never been written about in the The Wall Street Journal, Barron's, or any other U.S. newspaper or magazine.

GOVERNMENT GOLD PARTNER #2: The second company I want to tell you about was formed by key members of China's National Non-Ferrous Metals Industry Corporation, a state-owned company.

In other words, several Chinese government employees got together, and used their power, influence, and connections, to create a company that is now the biggest foreign gold producer in China (they also have a local Chinese partner, which maintains an 18% interest).

It's no surprise, of course, that this company (created by former government employees) became the first local-foreign company to develop a gold mine in China. Or that they are the largest gold producer in China today... and control the country 2nd largest mine.

In short, there's no foreign company in China that can get projects done like this company can. I think it's absolutely a no brainer to own the biggest foreign producer in the world's #1 gold-mining country.

Keep in mind, this is still, relatively speaking, a tiny, tiny stock. It costs less than $7 a share... and is much less than 1/10th the size of Barrick Gold, the world's biggest gold producer.

I believe this tiny company with China operations could return many times your money over the next few years. And I'm not the only one who thinks so...

A Canadian firm just bought 20% of the outstanding shares. And I believe they are probably willing to pay at least 50% more than the current share price for the rest of this small Chinese miner.

A buyout could quickly double your investment. But the truth is, I'd rather hold this company for the next few years and potentially see 500% gains or more.

And this brings me to a third government opportunity I haven't even mentioned yet...

Better than gov't-owned gold?

I've described how the Chinese government is creating partnerships and spinoffs to develop the local gold industry.

Well... they are also spending a fortune to develop the local silver industry.

In a nutshell, the government is bringing in an experienced business to consolidate small mines, and to make them more efficient and profitable (while remaining partially government-owned).

And the good news for us is, there's basically one tiny silver mining company from Canada that has quietly become the government's favorite partner.

As I'll show you, this company is growing at a wildly fantastic pace. It is extremely profitable. And yes, it has the government as a direct partner on several of it's holdings.

In the Ying mining disctrict, for example, this small Canadian company has worked with the Chinese government to consolidate a group of mines, and has since turned them into a very profitable operation.

Today, this company produces tens of millions of ounces of silver every year—all in China. It is the cheapest mining company of it's type in the world, by far. And it has partnered with the Chinese government in a handful of projects.

On each of these projects, they pay NO taxes for the first two years.

And get this: Despite operating for just three years, this company is already the largest silver producer in China-- yet today it is still completely unknown.

I cannot say this strongly enough: You may never get another chance like this in your investment career... to buy such a cheap and wildly profitable mining company at the very beginning of what I see as a huge uptrend.

Overall, this company has grown its resources by an incredible 360% in roughly four years.

That's remarkable. And impossible to do in the U.S. or Canada... or any other developed country.

That's why China is the absolute best place in the world to grow a new mining company. Better still, we have a business that has no debt, almost $70 million in cash, and in large part because they are partnered with the government, has NEVER been turned down for a mining license.

My extremely conservative estimate for this company is a 100% gain before the end of this year (remember, it's still a very small company, and costs less than $5 a share). After that, the sky really is the limit.

I would not be surprised if this company ultimately becomes one of the most profitable stocks I recommend in my entire career.

Of course, I can't promise how much any of these companies are going to return over the next few years—there's no such thing as a guranteed investment.

But keep in mind: When mining companies get in early on new territories, they have a history of making investors an awful lot of money...

* A company called Rangold was instrumental in early mining operations in Mali. It has returned 634% in roughly the past five years.

* Keegan Resources got in early in Ghana, in West Africa, and has paid investors 489% in less than a year.

* A company called Buenaventure got in early in Peru's mining business... and has paid investors 1,293% over the past decade.

* And Barrick Gold... one of the companies that has made a business of being able to get in early in places like Peru, Argentina, and Tanzania, has returned a whopping 6,700% since going public.

I believe now is the perfect time to get in early on China's mining business, especially when you can have the government on your side.

And here's how I recommend you do it...

The New Secret of Getting
Rich in the Next 5 Years

My name is Matt Badiali. I'm a geologist.

I have a Masters of Science (M.Sc.) in geology and more than 13 years of industry and research experience.

You see, for years I wanted to take my expertise in resource companies and help people understand the business... and make some good money at the same time. So, a few years ago I joined a research team called Stansberry & Associates, which includes a PhD in finance, a former CitiGroup bond trader, several Johns Hopkins scientists, the former head of a California brokerage firm, and several Certified Financial Planners and hedge fund managers.

I learned their trade. And they learned a bit of mine.

And – for the past four years – I've leveraged my knowledge of the industry to help thousands of everyday Americans see huge gains by investing in precious metals and energy-related plays.

I've been studying China's gold (and silver) industry very closely for the past few years.

As I mentioned, China is the world's largest producer of gold in the world today, and the third-largest producer of Silver.

But this industry is still in its infancy.

When China's exploration and production techniques get better, China will dominate the world's gold production in an even bigger way. You have to remember that for basically the past 50 years, China had essentially NO precious metals industry.

But now the sleeping giant is waking up.

"China represents one of the world’s great remaining unexplored gold regions." – Greg Jones, geologist working in Southern China

There are several extraordinary investment opportunities in gold and silver right now.

I hope you take advantage of them.
Good Investing,
Matt Badiali
Editor, The S&A Resource Report

Autochartist Forecast - EUR/JPY Approaches Congests within Triangle

The EUR/JPY has been trending higher on the shorter term intraday charts like the 15, 30, and 60 minute charts. As New York prepares to open it would be likely that some uptrending pattern alerts will emerge. But the real question will be whether or not the EUR/JPY has the buying support to test and overcome the major psychological resistance waiting at 136.00.

The market cycle on the longer intraday timeframe -- the 240 minute chart -- would indicate that the pair is in distribution. This means that breakouts are not likely to follow through since the market is going sideways, but in a wider, more unpredictable and volatile range. The current Triangle pattern alert on the 240 minute makes perfect sense since there is little trend on this chart and it's common that triangle patterns begin with a distribution cycle at the wider end of the triangle and tighten up into accumulation as the triangle's downtrend and uptrend lines squeeze price action.



The recent highs that this pattern will also be contending with will be the 136.05 and 136.09 highs from June 27th and 28th. The breakout level on the chart is at these levels. However if the distribution cycle continues and the market cycle does not continue to flatten out as it travels within this pattern, there is more chance of exhaustion at the "00" than a breakout. If prices are able to pierce the 136.09 high, then a breakout could follow through to the Forecast Region that will be plotted once this pattern triggers. Remember the next level up to watch is the 136.88 high from June 1st.

For further information, visit www.autochartist.com

Get in early on this trend - China Govt's Secret New Gold investment

China Govt's Secret New

Gold investment could pay

500% over next 2 Years

The specifics of this opportunity have NEVER been written about in The Wall Street Journal, The New York Times, or any other U.S. newspaper or magazine.Yet this could be the easiest way to make a fortune over the next few years. The last time the Chinese Gov't created a similar investment (2002) it returned 1,084%.

Dear Reader,

China has gone crazy for gold.

In April, for example, the government's Foreign-Exchange Agency announced the purchase of an additional 16 MILLION ounces for state coffers.

And just a few months earlier, National Geographic Magazine reported that for the first time China had surpassed the U.S. as a buyer of gold jewelry.

But here's the amazing thing few investors realize...

Behind the scenes, in a move that has gone almost completely unreported in the Western press, the Chinese government has created a gold investment that could dwarf the returns of gold bullion, ordinary gold stocks, or any other type of gold investment you've heard of before.

I wouldn't be surprised if you see gains of 1,000% or more.

I realize that may sound impossible, but consider...

This is not the first time Beijing leaders have secretly created such an opportunity:

In the late 1990s, the Chinese government created two similar investments. One (to help the local insurance industry) went up more than 625% in just a few years... the other (to aid the energy sector) has gone up about 1,084% over a similar period.

But this is the first time Chinese officials have intervened in this way in the gold markets—and I expect the result will be a windfall for savvy investors over the next few years.

After all, gold is one of the only "buy and hold" investments in the world right now. It is also the only investment in the world that has gone up EVERY YEAR for the past five years straight. And, remember, China remains the fastest-growing economy on the planet, with the wealthiest government on Earth.

The point is, if you are interested in an extremely lucrative way to own gold, right alongside the Chinese government, this is something you should consider.

I can just about guarantee you will not hear about this opportunity in any mainstream media publication. I heard about it only because of a contact in the industry, who met recently with officials in Beijing.

I expect the word will soon get out. But until then, you have an incredible opportunity. Let me show you what's going on...

The most reliable

way to see 500%+

There's been perhaps only one truly reliable investment trend over the past 20 years.

Bull markets have come and gone. Stocks have done well during some periods... and crashed during others. Same with bonds and real estate.

But there's one type of investment that has continued to reliably pay an absolute fortune.

In short: When the Chinese government creates a new investment vehicle, by spinning off part of a government entity, early investors have made a killing.

When the Chinese government realized they needed to improve their insurance industry, for example, they broke up state-run agencies, and created China Life Insurance, the only company with a national license. Investors have made 625% in the past five years.

When the Chinese government realized they needed more industrial supplies for manufacturing, they spun off state operations and created a firm called Chalco... which paid more than 2,100% over a six year period. They did the same with mobile phones, turning state interests into a public company that has provided 583% gains since becoming available.

And they did the same thing not too long ago in the oil industry...

First oil... now gold

In the 1980s there basically was no "oil business" in China.

But the economy at the time was growing nearly 10% per year... and the government realized they had to become a major player.

The first thing they did was open up their own reserves for exploration. A government-created and partially government-owned business called China National Offshore Oil Corporation received an exclusive right to explore, develop, and produce oil with overseas partners. Investors have made more than 837% on this company since 2001.

Next, the Chinese government rewrote the energy rules, injected billions of dollars of capital, and in 1999 spun several new businesses out of the state-run China National Petroleum Corporation (CNPC).

** PetroChina, for example, was set up with the help of Goldman Sachs. Early investors in Petro China made 1,084% in about four years.

** Another spin-off from the state-run oil monopoly was a company called Sinopec. The government still owns 70%. And investors who got in early made about 960% over a seven-year period.

The point is, China woke up to the fact that they needed to own and control as much oil as possible, to grow the economy and become a world power.

And now...

What the Chinese government did for oil over the past decade... they are today doing for gold.

This is a huge development.

You see, most investors don't realize that China is now the world's largest gold producer (they passed South Africa last year).

China is also one of the few countries in the world where known gold reserves are increasing... not shrinking.

That's why I predict that investing in China's government-created and partnered gold companies will be one of the easiest ways to get rich over the next few years.

Let me explain how it's all going down...

China's Secret Solution

For essentially the past 50 years, no one was allowed to touch gold in China... except for the government.

But today, that is changing... and in a hurry...

In short, the Chinese government wants more gold.

They realize gold is one of the only buy-and-hold investments in the world right now. And they've got a lot of money to spend... nearly $2 Trillion according to a recent report in The New York Times.

So the Ministry of Land and Resources has completely rewritten the country's mining laws (known as the Minerals and Resources Law) to encourage local and foreign companies to explore for and produce more gold.

The government has also recently created the Shanghai Gold Exchange, to allow anyone to trade gold, on the open market, without government interference.

But most importantly for you and me, the government has quietly gotten behind a handful of publicly traded gold companies.



I believe these deals could make you extraordinary amounts of money over the next few years.

Let me show you the specifics, and why I believe this could make you so much money.

Remember, this is all happening incredibly fast in China—just like it did in the oil industry, where investors in Sinopec made 360% in 10 months... investors in PetroChina made 140% in less than year... and investors in China National made 102% in five months.

Twenty years ago, China produced an inconsequential amount of gold. Today, China is the #1 gold-producing nation in the world...

And these new government deals are poised to make some smart investors quite wealthy, very soon...

Investment #1: Gold Partnering
with the government

When it comes to gold mining in China, it's a whole different world than what we're used to in America...

There's no such thing as a NI43-101 disclosure form for mining companies, like we have here at home. And instead of a handful of giant companies running the industy, like we're used to, it's basically thousands of small operations scattered across the country.

In short, it's like the American Wild West.

That's why having the government on your side can make all the difference in the world...

For example, there are two very small gold mining companies with government connections that have a very good chance at making you several times your money in the next few years...

GOVERNMENT GOLD PARTNER #1: Recently, the Chinese government helped create, and took nearly a 50% ownership stake in, a very small gold mining company, in order to develop a handful of the country's most promising gold projects.

Already, the company has two producing properties, and exploration permits for two of the countries most gold-rich, untapped areas.

What makes this investment so appealing is that normally, when you deal with investments in China, there are certain political risks.

Will the government approve your projects? Will you be allowed to explore and develop the most potentially lucrative territories?

But for this small company, the political risks are virtually non-existent. After all, the company is nearly half-owned by the government, so obviously it will have huge advantages.

That's why I believe there's a very good chance this company will eventually become one of the world's "major" developers. And if that happens, you could easily make 2,000% on a small investment stake today.

We saw what happened when the Chinese government got behind several promising oil companies. Investors made more than 1,000% gains over a several-year period.

Well, now I believe there's a very good chance the same thing is going to happen to this company in the gold business.

Consider that right now, this company sells for well under $5 a share. It was formed just a few years ago... and now has several projects in production, and several more on the way.

What's incredible, is that this company has never been written about in the The Wall Street Journal, Barron's, or any other U.S. newspaper or magazine.

GOVERNMENT GOLD PARTNER #2: The second company I want to tell you about was formed by key members of China's National Non-Ferrous Metals Industry Corporation, a state-owned company.

In other words, several Chinese government employees got together, and used their power, influence, and connections, to create a company that is now the biggest foreign gold producer in China (they also have a local Chinese partner, which maintains an 18% interest).

It's no surprise, of course, that this company (created by former government employees) became the first local-foreign company to develop a gold mine in China. Or that they are the largest gold producer in China today... and control the country 2nd largest mine.

In short, there's no foreign company in China that can get projects done like this company can. I think it's absolutely a no brainer to own the biggest foreign producer in the world's #1 gold-mining country.

Keep in mind, this is still, relatively speaking, a tiny, tiny stock. It costs less than $7 a share... and is much less than 1/10th the size of Barrick Gold, the world's biggest gold producer.

I believe this tiny company with China operations could return many times your money over the next few years. And I'm not the only one who thinks so...

A Canadian firm just bought 20% of the outstanding shares. And I believe they are probably willing to pay at least 50% more than the current share price for the rest of this small Chinese miner.

A buyout could quickly double your investment. But the truth is, I'd rather hold this company for the next few years and potentially see 500% gains or more.

And this brings me to a third government opportunity I haven't even mentioned yet...

Better than gov't-owned gold?

I've described how the Chinese government is creating partnerships and spinoffs to develop the local gold industry.

Well... they are also spending a fortune to develop the local silver industry.

In a nutshell, the government is bringing in an experienced business to consolidate small mines, and to make them more efficient and profitable (while remaining partially government-owned).

And the good news for us is, there's basically one tiny silver mining company from Canada that has quietly become the government's favorite partner.

As I'll show you, this company is growing at a wildly fantastic pace. It is extremely profitable. And yes, it has the government as a direct partner on several of it's holdings.

In the Ying mining disctrict, for example, this small Canadian company has worked with the Chinese government to consolidate a group of mines, and has since turned them into a very profitable operation.

Today, this company produces tens of millions of ounces of silver every year—all in China. It is the cheapest mining company of it's type in the world, by far. And it has partnered with the Chinese government in a handful of projects.

On each of these projects, they pay NO taxes for the first two years.

And get this: Despite operating for just three years, this company is already the largest silver producer in China-- yet today it is still completely unknown.

I cannot say this strongly enough: You may never get another chance like this in your investment career... to buy such a cheap and wildly profitable mining company at the very beginning of what I see as a huge uptrend.

Overall, this company has grown its resources by an incredible 360% in roughly four years.

That's remarkable. And impossible to do in the U.S. or Canada... or any other developed country.

That's why China is the absolute best place in the world to grow a new mining company. Better still, we have a business that has no debt, almost $70 million in cash, and in large part because they are partnered with the government, has NEVER been turned down for a mining license.

My extremely conservative estimate for this company is a 100% gain before the end of this year (remember, it's still a very small company, and costs less than $5 a share). After that, the sky really is the limit.

I would not be surprised if this company ultimately becomes one of the most profitable stocks I recommend in my entire career.

Of course, I can't promise how much any of these companies are going to return over the next few years—there's no such thing as a guranteed investment.

But keep in mind: When mining companies get in early on new territories, they have a history of making investors an awful lot of money...

A company called Rangold was instrumental in early mining operations in Mali. It has returned 634% in roughly the past five years.

* Keegan Resources got in early in Ghana, in West Africa, and has paid investors 489% in less than a year.

* A company called Buenaventure got in early in Peru's mining business... and has paid investors 1,293% over the past decade.

* And Barrick Gold... one of the companies that has made a business of being able to get in early in places like Peru, Argentina, and Tanzania, has returned a whopping 6,700% since going public.

I believe now is the perfect time to get in early on China's mining business, especially when you can have the government on your side.

And here's how I recommend you do it...

The New Secret of Getting
Rich in the Next 5 Years

My name is Matt Badiali. I'm a geologist.

I've been studying China's gold (and silver) industry very closely for the past few years.

As I mentioned, China is the world's largest producer of gold in the world today, and the third-largest producer of Silver.

But this industry is still in its infancy.

When China's exploration and production techniques get better, China will dominate the world's Gold production in an even bigger way. You have to remember that for basically the past 50 years, China had essentially NO precious metals industry.

But now the sleeping giant is waking up.

And I hope you'll join me for what I believe will be a very profitable ride. Remember, China is by far the richest government in the world (with about $1.95 TRILLION in reserves according to The New York Times). That's one of the reasons why I think this will probably be the easiest way to make a heck of a lot of money over the next few years.

I've done a ton of research on this opportunity over the past 6 months, and have put everything you need to know about gold and silver mining in China into my latest Research Report, called: Government-Backed Gold and Silver—How to Make 10-Times Your Money in China. I will publish that report later this year.

"China represents one
of the world’s great remaining unexplored gold regions."

– Greg Jones, geologist

working in Southern China

I hope to hear from you right away. There are several extraordinary investment opportunities in gold and silver right now.

I hope you take advantage of them.

Good Investing,

Matt Badiali
Editor, A Resource Report
July 2009.

China's New Gold Rush

By Matt Badiali

When the Chinese government decides to get behind an industry, it goes all in.

Consider what happened with the Chinese power industry. In 1979, the government rigidly controlled electric power production. Only 60% of the country's small towns and villages had electricity – leaving 400 million people in pre-industrial conditions.

For the next two decades, the government focused on a massive electric-infrastructure program. Even so, by 1998, 14,000 villages and more than 8.8 million households were still without electricity.

Finally, in 2002, the government broke the national power company into five government-backed companies. The Chinese government decentralized the power industry and allowed the market to set the price of electricity.

Jim Rogers, in his book A Bull in China, calls that decision a watershed moment for China's power industry. The five resulting companies, China Power Investment, China Huaneng Group, China Guodian, China Datang, and China Huadian were huge successes. By 2005, more than 99% of the country's small towns and villages had electricity.

Investors made a killing, too. Investors in Huadian Power International, a public subsidiary of China Huadian, made 560%. Investors in Datang International Power Generation, a subsidiary of China Datang, earned 1,160% on their investment in just seven years.

The massive growth in electrical capacity also fueled an explosion in the coal industry. Coal supplies the fuel for 70% of China's electricity generation. Chinese coal stocks roared higher... In 2001, you could have bought Yanzhou Coal (YZC), China's only publicly traded coal company, for around $2. By late 2007, you'd have made more than 1,000%.

Now's not the time to invest in China's coal or power sectors. The opportunity for astronomical gains there is gone. But that same kind of growth is showing up in China's mining industry.

In the 1950s and 1960s, the Chinese government explored the country for mineral resources. But it lacked the technical expertise to extract what it found. It wasn't until the late '70s that it began the slow process of modernizing its economy. One of the first areas the government focused on was mining...

In 1979, China opened up two autonomous regions to foreign companies for exploration. China's government knew that was the only way to gain access to foreign capital, expertise, and equipment.

The program's success caused the government to open 11 new mineral-exploration areas in 1986, and 10 premier precious-metals regions in 1997.

Welcoming foreign mining expertise has completely reinvented the nation's mineral industry. In 1997, China produced just 45.8 million ounces of silver. In 2007 (the most recent data available), it produced 160 million ounces. Its gold production rose 134% over that same period.

In other words, the country went from practically no silver or gold production to become the third-largest silver producer and the largest gold producer in the world in less than 20 years – thanks to the government's push.

The thing to remember is, while these mining regions have been open to foreign exploration for more than a decade, most of China's enormous wealth of metal is still in the ground.

Mines don't appear overnight. Exploration and mine development take years. China's decades-old decision to open its mineral resources to foreign mining companies is just now coming to fruition.

And now, China's government is providing an enormous boost to its mining industry: In April, the country's Foreign-Exchange Agency announced the purchase of 16 million ounces of gold for state coffers. It wants to diversify its reserves, replacing some of its U.S. dollars with something tangible – like gold.

China has a lot of money to spend... nearly $2 trillion. I expect a lot of that money to flow to national mining efforts – and investors who buy in today. In other words, investing in China's gold mining industry today is like investing in Chinese coal miners in 2001.

About a dozen publicly traded companies are mining or exploring for China's massive gold and silver deposits. Many of them are plenty risky... and some are complete duds. But with the right few miners, you could be celebrating quadruple-digit returns in a few years' time.

Good investing,

Matt Badiali.

Don't Trust the New Rally Until You See This Signal

By Tom Dyson

The bull market is back on... almost.

The S&P 500, the most important stock index in the world, is racing to new highs. Two weeks ago, I was ready to proclaim the bear market rally "dead." Then the market whipsawed. It broke to new nine-month highs last week and is now closing in on the 1,000 milestone...



But wait... what about Russia?

To help me keep track of the major trends in the market, I maintain a list of 87 exchange-traded funds (ETFs). These ETFs represent every major stock sector, currency, commodity, and country index. I calculate the three-month performance of each ETF and then order them first to last. By analyzing this list, I can immediately tell which sectors the money's flowing into and which sectors it's leaving.

Russia represents everything stock-market bulls are in love with: Growth in third-world consumption, scarce commodities, global trade, and cheap labor.

Russia topped my ETF performance list from the moment the stock market started rallying in March... until it topped out in June. If Russian stocks aren't soaring, there's a problem.

Below is a chart of Russian stocks, as measured by the Market Vectors Russia ETF (RSX). They made new bull market highs in May, pulled back during June, and started rising again in July. Unlike the S&P 500, Russia has not made new highs.



As Jesse Livermore, the original and most famous trend trader used to say, "As the leaders go, so goes the entire market."

Besides Russia, financials, homebuilding, and Indian stocks led the recent market rally. All those charts look a lot like the one above.

Until you see these sectors make new highs, you should remain skeptical of the current rally in the S&P… even though it's enticing.

When I see these sectors make new highs, I'll be ready to issue the "all clear." Until then, I recommend you keep your powder dry...

Good investing,

Tom.

Brian Hunt's Market Notes

AN IMPORTANT LINE IN THE GOLD MARKET

Coming soon to a market near you: The next skirmish in the "battle for $1,000" gold.

As I detailed last month,$1,000 per ounce marks a big battleground between the buyers and sellers of gold. In the past 18 months, gold buyers have made four attempts to breach the level... and have been turned back each time by the sellers. It's a classic "trench warfare" back and forth action.

We encourage DailyWealth readers to view gold not so much as a trading or investing vehicle, but as a form of financial insurance. Gold is real, tangible money. It can't be printed and debased by a gang of bureaucrats. It's climbed higher every single year for the past eight years, which gives it the strongest uptrend of any financial instrument anywhere in the world. There's no need for gold owners to get worked up over short-term movements.

But we're watching the $1,000-an-ounce line closely simply because thousands upon thousands of market players watch it closely. If the buyers of gold go "over the top" and take the line, it could bring in a flood of new interest from people waiting on the sidelines. We're long. And we're rooting for the buyers.

When Small Investors Buy, Big Investors Sell

By Steve McDonald

There is an unofficial rule in the stock business called the “Odd Lot Theory”. It states that when small investors buy into a stock it’s a sell signal. A “small investor” is defined as someone who buys small lots (hundred share orders rather than thousands of shares) or odd lots (less than one hundred shares).

The reasoning is that the small investor is consistently wrong about when and what to buy, so if the little guy is buying, it’s time to sell. This unofficial rule has been painfully accurate during my 25 years in the markets.

The small investor consistently takes too little risk or too much risk or buys in after the market or an individual stock runs up. These are the only consistent qualities of this class of investor and they always result in losses.

Take a look at what the small investor has been doing lately.

A recent Wall Street Journal article, “A Taste for Risk-Again,” listed the activity of mutual fund buyers, the favorite of small investors, since last year’s sell off. Purchases in emerging markets, China, and junk bond funds, sectors that have already seen big run ups and that are considered high risk compared to domestic large cap funds, have sky rocketed.

Investors in the first five months of 2009 have poured $4.9 billion into diversified emerging market funds compared to pulling out $2.6 billion in the same funds last year. Investments in the riskier junk bond funds are up 10 times over last year.

At the same time, large cap U.S. stock funds have had $11.2 billion withdrawn in ’09 in addition to the $52 billion withdrawn last year.

What’s the explanation for this surge? Small investors are trying to recoup their losses from last year by jumping in late on higher risk investments. See the pattern? Too much risk, too late.

At the other end of the risk spectrum, the risk adverse small investors who took their losses and ran from the market last fall have been hoarding cash. The savings rate in the U.S. is up from 0% of after tax income in 2008, to 7% in 2009. The cash sitting on the sidelines is gigantic and all of it is generating an after tax and inflation loss.

Despite the run up in the market since March of this year, the best companies in the world are still available for pennies on the dollar and are offering huge dividends. As always, the small investor wants nothing to do with these high quality, lower risk investments.

Merck for example is off about 55% from its January 2008 high. It has a dividend of about 5.7%, that alone is almost three times money market or savings rates, and it’s literally one of the best companies on the exchange.

Merck, and a hundred others just like it, is appropriate for just about everyone and could be a core holding in almost anyone’s portfolio. At a 55% discount it is essential.

Large cap, dividend paying stocks are one of the best places for small investors. It gives them income and stability they can’t get in any other investment and a risk level that is perfect for all but the most risk adverse. But, as usual, the small investor is 180 degrees out of sync with what he should be doing.

The small investor historically will not be interested in a stock like Merck until it is at or near its 52-week high and the dividend is in the one to two percent area, exactly where you should be taking profits.

The Odd Lot Theory works. Use it to change how you are managing your money rather than being a victim of it.

Good luck.

Steve.

You Won't Believe This Bear Market Is Almost Over

By Dr. Steve Sjuggerud

You might not admit it yourself. But it's probably true...

Three years ago, you probably believed "you can't lose money in real estate."

It's OK... just about everyone believed that. But once everyone believes that about an investment, it's time to sell!

Today, just about everyone believes bad times for real estate will never end. Once everyone believes that, it's time to buy... or close to it.

My friend, you might not believe it... But the terrible market in housing is almost over. It really is almost time to buy residential real estate. Let me show you why...

I track three main indicators to tell me the "health" of the residential housing market. They're all pretty simple to understand... and two out of three are incredibly good in their timing (the third is a good judge of value). Let's look at 'em, one by one...

First up: The number of new homes started by builders. After "housing starts" hit a bottom, home prices tend to bottom six months to a year later. Importantly... Housing starts are at a record low right now.



Builders start too many homes (when the blue line goes above 2,000) in good times. Prices peak soon after. In bad times, builders start too few homes (when the blue line goes below 1,000). A bottom in home prices follows.

Based on this chart, housing prices could bottom soon... possibly in the next 12 months.

Second: The supply of homes available for sale. This indicator is typically called "months supply." But it's really a ratio of the number of houses available for sale divided by the current rate of sales per month.



A high supply of new homes on the market causes prices to fall. (It's simple supply and demand.) Once the supply of new homes peaks and starts to come down, home prices bottom and start to rise.

Today, the supply of new homes is near a record peak, and it's coming down. So a bottom should come within the next 12 months.

Lastly: Housing "affordability." People buy homes when they're affordable. In technical terms, homes are "affordable" when the median family's income can afford the mortgage payment on the median home at current mortgage rates.

Right now, homes are more affordable than ever, based on this ratio.



Since houses have fallen so quickly in price and mortgage rates have fallen to record lows, housing affordability is at record levels. This is a great "value" indicator for housing... and value is great now.

Housing is not like the stock market. Cycles in housing move slowly. So we can wait on an uptrend to "confirm" the housing market is back before we move in.

We're lucky here... we have a few good "leading" indicators, with good track records. Of course, my indicators could deteriorate from here. But right now, they're at record levels and showing signs of improving.

It's not time to buy residential real estate... yet. But the time is darn close.

Good investing,

Steve.

Why I Would Manipulate Silver

Why I Would Manipulate Silver
(IF I were a central bank!)

Silver Stock Report
by Jason Hommel, July 8th, 2009

Goldman Sachs has admitted that they have a computer program that can be used to manipulate markets.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_6d.tyNe1KQ

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,”

For over ten years, www.GATA.org has gathered information and admissions from central bankers and major bullion banks that the price of gold on the world market is manipulated lower than it should be. Well, one more admission is close enough for me to be counted as one more proof.

Many people are paid to deny such manipulation of course, because the people who are doing the manipulating are earning a lot of money from their ability to print money at will, without it showing up in a rising gold price.

One of the more preposterous denials of manipulation is that keeping silver down in a rising market would simply cost too much, as nobody could afford the losses.

That's just propaganda, of course. Losses on bad trades, such as being short the silver market, must be taken by somebody.

But my strength lies in running the numbers, using estimates, and exaggerations, to prove the point.

At the most, I've seen the silver market with a total open interest of up to 800 million ounces. This is a rare top, of course, but it can be used to determine a hypothetical maximum of "total losses" for being short silver during the entire bull market.

Silver has moved from a low of about $4.15/oz. in early 2003. Since then, silver topped out at about $21/oz. in the spring of 2008.

Using those three figures can give us a maximum total estimate of COMEX paper silver losses, assuming 5 unreasonable and exaggerated things.

1. That the short position was all put on, and initiated, entirely, at $4.15 -- which it wasn't, it was put on starting at the former top in 1980 of $50/oz, and major bullion banks have always been short, ever since.

2. That the short position was completely covered at the top of $21 -- which it wasn't, and it got much bigger at the top, and again, after that top, around $16/oz, as the banks sold 41 times more paper silver as was purchased by physical silver investors in a month, which helped to push the price down to $8/oz, which was very profitable for part of their position.

See: A Tribute to 7th Grade Math August 31, 2008
http://silverstockreport.com/2008/7thgrade.html

3. That the short position was one size, and held the entire time with no trading -- which it wasn't.

4. That the short position was always held by entirely one entity -- which it wasn't.

5. That the short position was always a maximum of 800 million oz. -- which it wasn't.

So, given the real facts, the losses on the short position would have been much smaller, but we are not interested in the smallest possible cost, but the largest possible cost, to utterly refute and ridicule the notion that it would be "too expensive" to manipulate the silver market in a rising market.

So, the difference between $21 and $4.15 = $16.85

The loss of $16.85 x 800 million oz. = $13.48 billion

Even with all the exaggerated figures, exaggerated in 5 ways, still brings the total losses in silver manipulation to a theoretical maximum of $13.5 billion. Clearly, the real loss, being short on silver at the COMEX, must have been much less.

But I would guess that they might even have profited along the way, instead of taking losses, for several reasons.

First, they have those "manipulation trading programs" admitted by Goldman Sachs at the start of this article.

Second, their positions are so large, that those who are short, ARE the market, and I'm sure they use their computer programs to only sell "just enough" to move the market price nearly at will.

Third, they know their own clients' books, and stop losses, and can run the price of silver to trigger those stop losses to take over client long positions, so their clients lose money.

Fourth, the COMEX positions are smaller than their OTC positions, which are a much bigger liability.

Fifth, rigging the silver price aids the rigging of the gold price, and both allow the continued existence of a falsely strong U.S. dollar, which they have printed up over $1 trillion of this year, with no new "inflation" showing up in the prices of gold and silver.

And that fifth reason is so profitable, that a $13 billion loss in COMEX trading is just "the cost of doing business", and anyone who can't see that, is either blind, or paid off, and you don't need a sophisticated computer program to realize that, but only the willingness to perform 7th grade math on 3 numbers, as I just went over.

The reason for me doing this simple math exercise is to show by comparison how that maximum figure of $13 billion, is so very miniscule, so very tiny, compared to that other figure listed as my fourth reason above, a very important figure, the BIS OTC silver numbers.

The BIS (Bank of International Settlements) publishes a list of the notional value of outstanding OTC (Over the Counter) commodity derivatives. The category of interest is "Other precious metals", which is mostly all silver. The amount in Jan. 2008, was $190 billion.

That consisted of $86 billion in forwards and swaps, and $104 billion in options.

http://www.bis.org/statistics/otcder/dt21c22a.pdf

In Jan. 2008, the silver price was about $16/oz. Thus, we can see that the number of ounces short in that "OTC" market was $190 billion / $16 = 11,875 million ounces.

This comparison is extremely important, because the OTC market is much bigger than the COMEX, which had reported short positions of a maximum of only about 800 million ounces of silver.

Currently, COMEX silver open interest is 133,000 contracts for 5000 oz. each, which is 665 million oz.

http://news.silverseek.com/COT/1246909610.php

Clearly, a loss of $16.85/oz., during the entire bull market in silver from 2003, over 11,875 million ounces in the OTC market, would be a much bigger loss, as it would be $200 billion!

Yes, in "OTC Bullion Accounts", world bankers have a potential loss of about $200 billion, if they could even deliver 11,875 million ounces that clearly doesn't exist in their vaults, and doesn't exist in the world even to buy!

It is also extremely important to note at this point that the world's silver mines only produce about 600 million ounces, and world physical investment demand is only about 100 million ounces, or about $1.3 billion at the current $13/oz.!

So, if you were one of those bankers, and you had a potential loss of $200 billion wouldn't you rather lose $13 billion trading at the COMEX to save the $200 billion loss in the OTC market? I would.

That must be very near to how they rationalize it.

After all, if you can control the reported price on the open markets, then your losses in the "over the counter" market is much smaller.

And it's a great scam, as long as people continue to be convinced to hold paper silver other than real silver, which they are, as the numbers prove it.

With only $1.5 billion going towards the purchase of actual physical silver in a year, while $200 billion is sitting in OTC "other precious metal" accounts, it goes to show that the vast majority of people who own silver, or about 99% of assets in "silver" are really paper silver, most of which could not possibly exist as real silver.

And that still does not include all the other paper markets!

For example, another paper market is the silver certificates issued by Canadian banks, that the Banks are no longer redeeming. The refusal and inability to redeem Canadian silver certificates has continued without much notice, and no official reports or admission. It's like a silent bankruptcy, not even getting any press or much blog coverage, because, still, so few people even attempt to redeem them. But my point is that I have no idea of the size of that paper market, it could be in the billions, too.

And those BIS numbers also don't include the LBMA accounts that trade up to 30 billion ounces of silver per year, which is about 120 million ounces of silver per day, on a base of 75 million ounces of physical silver, which is another absurdity, of course! Those numbers were reported in the CPM Group's annual silver book for 2008.

And those BIS numbers don't include the ETFs either, since the ETFs are not an "over the counter" market, but a transparent one, and also don't likely have any silver, since the custodian is JP Morgan, who has also been identified as the key bank that is short in the silver market on the COMEX.

So, perhaps much less than 1% of people who think they have silver, actually have any physical silver.

Furthermore, those people who are blissfully happy to let their assets sit in "paper silver" accounts are nearly guaranteed to not make any significant money in silver, if only because when silver does soar past $100/oz., there's no way that those bankers would pay out $100 x 11,875 million ounces = $1,187 billion dollars to those paper silver holders.

And of course, 11,875 million ounces of silver does not exist in the world for them to buy, cover, and pay out, in any event!

Instead, the banks will do as they always do, and merely change the rules, or force a cash settlement (which is a quasi-"bankruptcy") at much lower silver prices. They will simply default, which means that they will fail to deliver silver that they don't have, of course.

Their danger, of course, in doing even that, is that people might begin to wake up, and demand real silver if they can't have paper silver.

After all, paper silver serves its purpose to manipulate silver prices downwards, only if it serves as an alternative to prevent people from buying real silver.

Here's an additional cost of the manipulation. Manipulation only works if they can actually deliver real silver, at lower than market prices. I have heard of offers to miners of up to 4% over spot for access to all of their silver. Isn't that kind of offer evidence that the "spot" price is manipulated lower than the real cost of real silver?

So, let's calculate the maximum potential cost of that. Suppose the world bankers bought 100% of world production this way, at 4% over spot, from the miners and refiners, and then turned it around, to sell it at what becomes "spot", for 4% less, at a manipulated "loss", a loss to manipulate the markets. With 600 million oz. of world mining production, at $13/oz., x 4% is a mere $312 million, a tiny cost of "doing business" to keep manipulation going, and to continue the COMEX rigging, and to prevent the bankruptcy and loss of $200 billion in the OTC markets!



And even that $312 million "loss" could be mitigated, by moving the price of silver lower, at will, on the "spot" futures market, precisely on those days that miners or refiners sell to the bankers "at 4% spot". I've always wondered why miners always seem to report sales prices lower than average for the quarter, while often claiming to be using some sort of price protecting hedges to get "above market" prices. That must explain it, in part.

And so, that's why I would manipulate silver, and gold, if I were a blood-sucking vampire of a central banker, who had no conscience, and no knowledge of the importance of honest dealings.

One of my goals is to fight such wickedness in high places, as I strive to expose those evil ones to the light of truth to end their evil oppression.

I believe the manipulation can end suddenly, at virtually any time, as any one of nearly 1000 billionaires, funds, or nations, could decide to buy silver at any time, causing delivery defaults, and market failures, and major price dislocations.

I believe the manipulation usually ends when they run out of silver to deliver, and then, people begin to stop trusting in paper promises, such as happened to gold in 1933 and 1971. If the failure to redeem Canadian silver certificates is any indication, the world is scraping the bottom of barrel for silver.

I believe that when the manipulation ends, with delivery defaults, precious metals prices will rise with shocking speed, and even my own re-supply sources will likely dry up, and you might not be able to buy silver at any price, for an extended time, until the market price is much, much higher.


Sincerely,

Jason Hommel