Gold 2012.01.02 Today, we look at the relationship of gold and gold shares using the spot gold price and HUI. First chart shows the ratio goes much higher than the lowest ratio of 2 when there is financial crisis. Two spikes are shown on the chart: one during the burst of the high-tech bubble and another during the end of 2008. Despite the good performance of HUI which makes a 150% gain in 15 years, the yellow metal is doing better. The trend seems to end with a bang. Now we are running up. So there may be a drop in gold share price or parabolic shoot of the gold price.

Oil & Gas 2011.12.27 The spread between WTI and Brent continue to shrink while Brent continue to fall.

Gold 2011.12.27 Gold and precious metals have a correction. How serious is it compared to the most recent past or further? During the 1970s, gold corrected to the tune of more than 30%. In 2008, gold started the correction before the peak of the financial crisis. It ran from thigh high of U$976 to U$709 or down 27% in a period of 4 months. This time gold start the descend in September at U$1,901 to the recent low of U$1,571 or 17%. This is a mother bear correction for gold not papa bear correction so far. Observing the strength of U$, this correction has not done. More may come for another month for another 10% or more.

Oil and Gas 2011.11.17 The price of WTI used to have a premium over Brent. Since the end of 2010, that premium becomes a discount. The explanation is too much oil pumped to the Oklahoma. Today, the difference reduced to only $8 only. This change is explained as the result of Enbridge pumps the oil in different direction to south of Okalhoma while the oil price is at recent high. The following chart shows the premium started to diminish at the begining of October in a very rapid pace with Brent pulling back slightly despite the rapid ascend of WTI price.

Money Matters 2011.11.11 While we believe the commodities are back to rally, we have to revisit copper which is still holding above U$3.00 but not U$3.50 which is concerning. The following is the near period chart of copper future at COMEX. The continuous trading down of high and the 50MA is not turning up after the price crossed over and dipped paints a gloomy picture. This followed by the diving OBV all showing a heavy dumping of the metal after a pump. However, the double bottom should be broken before we start to worry. We should also observe the band of heavy volume in periods. The voilatility comes from more active trading. As the result, how to see through the fog of speculation is the more important question than whether we worry about the price moves by +/-20% range due to the speculation activities.

Money Matters 2011.11.08 Where are we as far as gold and oil is concern? Are we out of the wood? The answer is yes. Both have crossed above the 200MA. This is a strong message for the commodity investors but the under tone is inflation with higher demand of energy. Silver is close but not there yet. So everything seems rosy from technical perspective. How does this reflect the economic crises of country default in Europe? The rally of oil proofs once again the West is not dominating the demand only. Even with the change of free price fuel in China, the demand remains firm.

Money Matters 2011.11.07 Association for the Study of Peak Oil and Gas wrote in its 2011.11.07 Peak Oil Review reported that "China’s oil companies will be free to set retail prices for fuels under a new government pricing system. For years, Beijing has been slow to respond to changes in international oil prices which have left refiners in the position of selling oil products at a loss when the cost of imported oil rose. Under the new policy retailers can move retail prices freely within a range set by the government. The range which is based on international crude prices was not announced. Beijing will step in only when prices move outside of the range. Since 2009 Beijing has a policy of adjusting retail prices only when a moving 22 day average price of a basket of foreign crudes rose or fell by more than 4 percent." Since hydrocarbon fuel is the major inflation contributor of the Chinese inflation, we can conjecture two things: the rally of inflation or inflation is brought under reasonably control. When the hydrocarbon fuel is set to the free market, the Chinese petroleum companies will cut the loss. Share price will rise. The more important is that China may have acheieved the desired inflation control using a combination of measures and policies. The latest free-floating the fuel price may not be as inflation as it is. This move may be a economic stimulus as well as. By the higher price, it will curb the demand because the domastic fuel price of China and the internal price has a healthy 20-30% difference. By raising the price, the demand can be reduced due to affordability. At the same time, the higher revenue for the petroleum companies will be translated to higher economic development fuel.

Money Matters 2011.11.02 Greek's austerity acceptance is pending on a referendum but copper has made its call. The following chart shows the bottom out of COMDEX future. There is a buy signal. The double bottom may build the supporting floor further supported by the crossing of the 50MA.

Money Matters 2011.11.01 The reality sinks in; the Greek plan is not a plan. It does not only facing the Greek's resistance to give up entitlement but also create more inequality between who can live outside or inside the law of land. The deal is based on the perception that Greek will accept the terms and condition the IMF and ECB laid down without the consultation of the reality. The purpose is to put up a good show to save the skin of the German and Franch banks who hold most of the Greek bond before and during the crisis. China is standing outside the fire ring watching the side show carefully. It is not necessary that China is short of money to save her local government debt; it is the matter of timing. It is not ulgy enough. Comparing this to the plot in John Perkin's Confession of Economic Hitman, the West is doing the job for Chinese. When the debt crisis is here, the stock market retreat. The global stock markets lower by 2-3% and 4% at the low point. For hindsight, last week was the perfect time to sell high. When this happen, the commodities come down as the results of paired trade. Gold did not make any dramatic break up any resistance so it could retreat back to U$1,600 or lower. Silver broke the resistance of U$32; it has 90% staying above the $32 although it looks much volatile. Copper pulled back to just below U$3.50. It would be essential to hold above the U$3.50 but there is nothing to do with the economy. The other casualty include WTI. It sank below U$91. This will be temporary. The major player should be NG. The price keep on pushing up following the seasonal trend to near U$4.00. Worth to mention is platinum to gold ratio has sunken to 0.92.

Updated at the end of the day: While gold dipped below U$1,700, it resurfaces at the day end. Oil did not budge and did the same after submerged below U$90.  The stock index did not do the trick to pull down commodities completely. This is specially supported by the HUI which gone down slightly by 1.70. CGSI is up 10.04 2.5% and UGSI only dipped 0.56 0.1%. Choice of the horse is the trick to win the battle.

Money Matters 2011.10.28 The market performs in a very confusing and out-of-box mode. With the higher debt, the consumer spending will be limited that is the basis for the reduced oil demand. However, oil jumps back to U$90 range with a 4M barrel stock increase. When the market reacts different from conventional wisdom the news or the reaction should be in question. In case of oil, I question the news. The more important story is told by the following chart:

Platinum to gold ration is rising from 0.91 to the level of 0.95 in just in two weeks. The rise is just as fast as the fall.

After few months of dramatic fall of silver, it has broken the U$32 resistance. When it happens, it bolts to U$35. Copper is back above U$3.5. Quietly NG jumps 8% this morning. Is the old man winter here already?

Money Matters 2011.10.22 If we say this week is tough, it may be better to say it is confusing to micro-watcher. This week is no different from the other week that the market or the retail investors are driven by news who knows where it is created. To say these are news are kind. At the best they are guess. We have seen many of these news are created to move the market to a direction that does not necessary reflect the true direction of the economic or market situations. For the last 6 months, every effort seems to sell the American remains the driving force of the world. With its recovery or without the ability to recover will drag the world down. Starting this month, the news focus on a neck braking growth of Chinese's 9% GDP growth as horrible economic development while one year ago the most common song sheet was 9% were not sustainable growth. Who are these people and what is wrong with their memory. Double standard is applying liberally and randomly. There are statistics throwing around. They compare the disparity between the rich and poor that claim China is in trouble because Chinese disparity between the rich and the poor matches the American. By any standard, the poorest in America can easily better than the poor in China. All these news are not news. Gold has been praised by some as the barometer. On the other hand, they blame the paper commodities market does not reflect the true value. Is this only true when gold does not go up or it is actually over priced. Copper is sitting above the U$3.00 which is very profitable according to Don Coxe. This should be interpreted as very high demand. It is unreasonable to compare the peak price of copper at >U$4.00 to interpret the demand is dropped significantly. Can we tell the gold bug that gold is now U$300 lower or 20% down, the demand is 20% lower? Demand and price are not reflected instantly due to the hysteresis of action. This is related to the production and delivery cycle. What happens at the COMDEX are very artificial which is the fluctuation.

With most of the entertainysts now accept the fact that the world has not recovered as well as expected, the interest rate will not go higher soon. Lets take a closer look to see what may happen. The loan market for consumer and business is not determined by the central bank's discounted rate nor the over night rate. Those rate are the privilege of the banks. Consumer and business can never be benefited to them. The association of the discount rate to the consumer loan is a myth that created by the banker to jack up the rate. There is no law to enforce it. All these associations are illustion created to make people believe the government can control the bank's lending rate. If this is a solid relationship, let it become the law of the land. The rate is always driven by the economic activities and the greediness of the bank. A simple example is the credit card interest rate. Another example is when the discount rate set by Paul Volker was at 12% in the 1980s, the bank can charge 50% and more to more than 20%. These are in excess of 50% profit margin. If banks are so profitable, why the dividend rate are so low? Where have thay gone? If the banker are such elusive bunch of people in Canada or in States, why should we invest it? Is it because it is willing to payout 20-30% of the profit after the executives and some employees pocket the first prime cut?

Moneynamic 2011.10.16 When we quantify a phase or a period we can either delimite it by the inflexion point, vertex or change of zone. Change of zone refers to the value changing from positive to negative or negative to positive of some measurements. In many situations, a phase can contain multiple parameters but some can contain a single parameters. It is determined by the definition. For example, recession is determined by two successive decrease of GDP during two quarters. The main parameter is the change of GDP. The secondary parameters are the duration and the GDP. When the information is assessed and disseminated, usually one parameter is used. To have a better view, all parameter should be reviewed. In rare case, a single parameter is sufficient to fully qualify the situation.When a GDP growth rate is on a series of decline, the secondary information (i.e. declining of the increment) will provide additional information. From calculus, we know a better picture is offered by the differentiation or integration rather than the single point value. This relates to the first chapter in the Taoism which states that constant is not a trend. Statistician can lie because they can use variable factors to tell the story they want to describe. Consumer index is not really representing consumer's spending pattern is a good example. When people are crying that no body can call the top and bottom of the market, it is true because the market is moved by the money.

Money Matters 2011.10.09 Other than Doctor Copper, there is Baltic Dry Index for the shipping of dry goods. The following BDI from Bloomberg, show a upward trend of a U shape recovery which is powerful. This is contradicting analysts' reading of Doctor Copper which fell from the all time high by 20%. Does this spell the opposite? With paper commodity around, it is hard to judge the real demand. BDI is more accurate than copper.

Money Matters 2011.09.28 Celebration has to wait. It is not a good day after a half hearted rally. Yesterday's gain are sent back and more. Market volatility is weighing to the down side. Mother bear is playing with the investors.

Money Matters 2011.09.27 Precious metals have a dead cat bounce; or not. A drop of very 10% without a period of repairing will betray the technical and fundamental analysis. After violation of technical level, repair period must elapse to ensure the wound is healed. When a major drop happens, the supply and demand shows a metastable. To go back to stable equilibrium will also take a lot of time. We should pay very serious attention to gold which at one point leaped about U$80 but at the end of day only return to U$1,650 or up U$22. Silver do better but only stay put at U$31 level. WTI is the strongest. At the dawn of the day, it rests at the gain of 3.7%. All commodities stock slides at the end of market despite strong gain in the morning. The close to 300 point gain of Industry only keeps half of it to have a gain about 150 at the end of the day. Lets do not celebrate yet. Tomorrow will be the same level of volatile perhaps to the down side. Gold stocks indicate the rally in gold is not convincing. HUI down 0.6%, CGSI down 1.6% and UGSI down 0.9%. People are selling on rebound.

Money Matters 2011.09.24 Believe or not, all the analysts who predicted the full blow bear market were wrong. These broadcast has the same effect as Richard Russell explains when the analysis is used by everybody it lost its accuracy. If the analysts were right, they should sell before the fall. If they don't eat their cooking, how could people trust them. If they sold before the fall, there will be not panic selling and we should not see the major break down. We cannot just quote what happened in history and qualified it by sometime in future. Money is a serious business. People's live can hang on it. Gold has been gone out of proportionly rally with the hype from everyone that it can go one direction. Silver is being dragged down by psycological effect of the Hunt's Brothers in the '80s. People continue to beileve biased analysis based on the Western economy ignoring the BRIC's domestic economy that could replace them and has been half way through. There is still danger the reducing the transition because all BRIC countries are exercising the inflation control to cool the economy. Even with the cooling, we still can see the enormous 7+% growth. This growth sustainable or not can be debated. From the number perspective, the base GDP was rediculous small comparing to the population. It was only a tiny fraction of the West. With that in mind, the group of upper single digit is equivalent to the lower single digit. Nonetheless, such growth induces hyperinflation but this is can be argued that this is the improvement of the standard of living from way below proverty. I strongly believe that 7+% should be reasonable with heavy handed inflation control which impact speculative side more than anything.

Money Matters 2011.09.07 At close today, the performance of gold and gold stocks are at two different poles. Gold future dipped below U$1,800 to U$1,791 and finished at U$1,817 from the start of day at U$1,880; down 3%. HUI up 2% while CGSI and UGSI are symbolically up fraction of a percent. A recover from the low of down 2-3% to a fractional gain with gold lost about 5% in last two days. Gold stocks can be sitting on a turning point. It could start the rally any time.

Money Matters 2011.09.07 After two days (3 days for out of America) of sold off, stock markets around the globe stabilized and make some 1+% gain. During this period of Chaos, USD jumped above 75 and flirting 76 yesterday due to Switzerland action selling off as much as needed to keep its exchange rate with other currency down. This makes the U$ more expensive. Gold is weakening and trading within the range between U$1,800 to U$1,900. For the meantime, USD is saved from breaking down below 74. Even with the help of financial systemmatic break down, the demand for U$ will remain high to either repatriate the money back to US or settle the debt by U$. Stock market can rally after the fear subside but the rally will be very selective to selected individuals that could provide income or show steady revenue during the storm.

Gold Stock 2011.09.06 Gold was brilliant in the morning; rose above U1,900. At the end of the day, it retreated to U$1,870 level. The market went down but not imploded. When the lost of indices were more than 100+ points, gold stock bloomed. As the indices recovered some of the lost, gold stock shrink but all managed a gain. Gold near future end of the day closed at U$1,874.40 down U$25.60 or -1.4%. HUI rose 3.75 +0.6% to 621.78 down about 13 point from the high of the day 634.85. CGSI and UGSI  gain 6.96 (+1.5%) and 2.76 (+0.6%). This is an obvious change of attitude towards gold stock because the market down and gold down but not good quality gold stock. We should have a much closer watch at the gold stocks.

Money Matters 2011.09.06 Wall of worry is mounting because of continuous bad economic news are pouring out one after another. One of the major concern is the US jobless number has no improvement. American is the biggest economy on earth but not the growing engine of the world. Due to the habitual culture, the Western's economy is the only concern. There is another indicator we can see the health of economy. The following is the Baltic Dry Index chart from Bloomberg. We are at the peak of last 6 months and coming out of a bottom. Can it be a good sign?

Moneynamic 2011.09.04 It is common theme among many entertainysts that U$ is a fiat currency. The litmus test they use is that you cannot ask for one oz of gold with U$35 which is the official rate set by the government before the gold window is shut. What should be the exchanged rate between the U$ note and gold is one fair question one should answer. Today, let's look at the other side of the equation. Do you need to allow the free exchange of the gold and the note? This act is contradicting the purpoase of money reserve. Money reserve is to back the whole monetary system and the money in circulation. As we all know that the money in circulation is physically more that the amount issued. During economic activities, such as letter of credit, businessmen create money. House owner does not have the money to buy the house can create money to buy it through mortgage. Mortgage is the money created and circulates in the system. By removing the gold reserve, it will cascade to create the deflation effect and restricted the normal operation of business. Therefore, cashing in the gold is not a reasonable request for any gold standard monetary system.

Returning to the gold reserve situation of US Government. Although the Fed is in a denial state to allow the audit of the gold holding and the exchange of the gold, we missed a major act the US government can control the price of gold to prevent it to make the gold rocket. The way entertainlyst to calculate the price of gold is by dividing the amount of US government's official obligation through the sold treasury by the amount of American gold reserve. Some also includes the social and welfare obligation such as heath and social security plans. Using this formula, the gold price will be at the tune of U$6,000 to U$12,000 according to the article "The rise and fall of US confidence" by World 2011.08.30. The mechanism of reserve is to set a balance restrain to grow the money in circulation. Issuing government bond or treasury note is a form of money creation that beyond the control but have the effect of money supply. Without an official valuation of a currency to a reference currency such as gold, will easily devaluate the currency. The reserve does not have to physically permit the free exchange of backing reserve and the currency. It is a misunderstanding and the exchange will collapse any reserve currency. The currency can partially back up by gold and a basket of other currency. This is not a precise way to compute the value a currency but has been accepted de facto. This creates a recursive dependency because other currencies are also calculated on the value of U$. None the less, adding gold to the money basket of USD will prevent the rise of of gold price as predicted by many analyst to the U$6,000 level even with war. While many people explaining how gold valued during the war time when they do not have the first hand experience. The truth is that gold did not have a fair price during the war. It was traded at a shocking percentage of the perceived value for those who use gold as currency. It was commonly use one piece of gold to exchange whatever you wanted. The price is not set by you but the seller of the merchandize. Who can sell can hoard the gold and makes great fortune if they could wait and keep the gold until peace time.

China 2011.08.29 Most recently, there is a debate on whether the 21st Century belongs to China or not. "Belongs" can be interpreted in two ways. The first is high achievements and the second is controlling. Both can give you the other as consequence. High achievement without control will like showing the cash outside a bank which tempts robbery. To continue to have high achievement, you need the help of controlling. This goes back to the intention of controlling. Using controlling to boost one’s achievement growth organically is a natural self-defense course. Appling controlling to get others’ resource to increase the achievement for the growth of control is aggression. I also see the use of direct military involvement to grow achievement never evolves to distinction. It will happen in the future history. But this type of “belongs” will shrink with the delinquency coming with the achievement like the Roman Empire. China's building of a world dominance is a consequence of its economic growth. During its path, productivity of tangible good is used rather than Keynesian Economy which builds growth from debt and services. China’s growth depends on the saving of people or austerity of the people which is the traditional of Chinese. We see the growth of the Keynesian Economic countries fall one by one. American and the British had the mega economic experiment using the Keynesian  economy and I see it as a failure. In the past history of China points to similar path. The prosperity led to the change of productivity economics to Keynesian. With the American and British falling, it creates a void of economic leadership that could be filled by China as the world factories. It will not be difficult to see the world  hooked on to the economy of China. The void is feeding the growth of China. The result is high economic achievement. How long will this domination continues? The major competitor is not from the BRIC. It will be the African continent which have comparable population. This may take another half a century.

Money Matters 2011.08.25 Gold bug shows more colour today. No more pamper. The market is biased to the inflational. Precious metals are coming back cautiously. Nobody is dare to do big movement. Today's gold jumped from the low near U$1,700 to the end of day at high point. Volume for gold future is low for the last few days; only 30% of the 200 day average. The low volume amplified the voilatilty together with the margin increase. The market is contradicting itself by the rise of USD by 30 bps to 74.25 and the rise of precious metals. Dr. Copper is sitting on the fence of U$4.00.

Money Matters 2011.08.24 Gold drops one hundred dollars today back to the U$1,700 zone. This is the correction we may want to see before gold rally.

Money Matters 2011.08.23 Dow Jones Industry Index rallied 300+ is not abnormal. But USD refuses to go down much below 74 is a mystery while oil recovered. Gold advanced from below U$1,700 to above U$1,900 in 3 days bounded to have a correction. So does silver. Gold dropped to U$1,830 level a one point but manageed to recover to U$1,859 at 6:00 p.m. Dr. Copper does not fall. Everything is moving in all directions. It is the destination we can foretell not the side trips.

Money Matters 2011.08.22 Well it is official to go into the U$1,900 territory. This is very interesting because the U$1,800 supposed to be a very strong resistance level but with the help of the Europe debt crisis, it melts away like butter. Spot gold closed at U$1,905.70 and the gold future End of Day closed at U$1,898.20 with the interday high for the future at COMEX hit U$1,900.90. The after hour trading pushes beyond this high and hit U$1,910.60. Silver future and spot reach U$44. So the precious metals are crazy. Even WTI crude went up after peace of Lybia is almost there. The more interesting is USD holds on to the 74 level. All are difficult to discern. As pervious indicated, silver's movement can be fast from here to re-challenge the U$50. It took gold three trading days to move from U$1,700 high end to U$1,900. Siver can just do that. From here on, inflation is hinted by the market. If so, the ratio of Dow Industry to Transport can continue to be low.

Money Matters 2011.08.21 The commodities market did not take a breath during this weekend. The following shows gold, silver, platinum are all in action. Oil and gas are disappointing as usual during the night. One of the important ratio is the the platinum to gold. The traditional ratio is two to one. There were two period platinum and gold are close to one. One is during the low point of gold during the late 1970's. The other was when gold slumped in 2008. Both happens to be the very low point of the period after the correction. Now gold is on rocket fuel but it is on par with platinum. What does it mean? Correction: On December 16, 2008, the ratio did sank to a low of 0.973 but in the month of October 1996, it was just a thread higher than 1. See the other chart. Since than, gold started the rocket engine.

Money Matters 2011.08.15 The North America stock markets have a very strong recovery starting last week. We have two indices below. One for the S&P TSX (on the left or above) and other is the Dow Jones Industry (on the right or below).

They have similar and major difference features. TSX did not fall as severe and recover is on the way. DJIA fell precipitately and had a broken double bottom. The OBV is above the index for TSX which is relatively more actively buy than the rate of change for the index. DJIA's OBV is below the index and not as active buying as the rally of the index. The good thing for TSX is heavy volume before the dip and after. There are panic sell and bottom after the index recover. As for the DJIA, there were major panic sell on July 25, 2011 but no major buy on the way to recover. The recovery of DJIA is weak. The recovery of TSX is strong. We can see if this is true in the coming weeks.

Money Matters 2011.08.13 The strong market volatility throw a lot of retail investors off the track. Stay calm may not be the best strategy but this time it is. If you were complacent during the 2008, you may not able to survive depending your holding. The stock market is the reflection of the economic eco system. The famous Kondratiev Cycle identifies a 60 year cycle of economic activities. Four seasons are used to describe each season. The following is a chart for the ratio of Dow Jones Industry to Transport Index. It shows a small 30 year cycles and a large 60 year cycle. To confirm this study's validity, we need at least two full cycles. For the meantime, we can use it as a mind exercise.

If Kondratiev cycle has 4 seasons. Each of it is approximately 15 years. We should not take the duration of each season too rigidly within the 60 year cycle. There should be some give or take. Looking at the chart and use the up or down slope as one season, we have counted the current season is spring. The interpretation and the characteristics of each season is well defined. For this study, these characteristics are not used. Rather, we focus on the relative relationship of manufacturing and the transportation. Each season indicates the shift of consequence of economic activities. During winter, essential good is the main staple. Shipping outperforms the manufacturing. The ratio is shifted from low to high when winter is passed. During the spring, demand for merchandise will increase but it is for lower cost. So the ratio is reduced until Summer begins when high price merchandises are in demand. During the fall, the high price merchandise wanes until the arrival of the winter. The trough of the chart can also be seen as peak inflational; the top is peak deflaitonal.

Money Matters 2011.08.08 The latest update from the spot metals is not good. In comparison to few days ago, they drop. Base metals drop abut 10% since August 1. This shows the base metals are reacting to the news not discounted the future.

The fall is mild but not insignificant. As the S&P dropped the bomb to down grade US government's long term rating as promised, the world political leaders are tasked to work. China Daily has a summary on what is the impact to the US government in this report: S&P cuts US credit rating to AA-plus 2011-08-07 by Xin Zhiming. This is one of the rare reports that spells out some numbers. In this report it quots JP MOrgan Chase & Co "estimated the cost increase could be about $100 billion a year." or about a quarter of billion a day of tax payers' money. This could not be taken lightly without raising tax. This down grade has been condemned by the White House as unpolitically sensitive, untimely and bogus because it is based on a miscalculation. Reuters report White House adviser slams S&P after U.S. downgrade 20110806 is childish and selfish. S&P has been alleged to not doing its job properly before the 2008 crisis. Now it is doing its job but get slammed. Anyway, it is still not doing its job because it should downgrade the U.S. many years ago when the debt continues to mount. How can one can have AAA rating when one cannot payback the debt?

Now the news leads to the fact that part of the risk mitigation is to buy Italian bond to avoid Italy to default by ECB. If this formula is used, China should buy more US bond to keep the party going which is not what is in China's mind. There is also reports hinting the forgiving of debt like the Bretton Woods agreement and the Brazil hyperinflation. This could mean someone raising a balloon to test how the U$ concedes the world trade currency. However, there is another possibility many have been proposed that U$ could be partially backed by gold (not 100%) but inconvertible also. However, this could spell the dead of the Federal Reserve Board. Anyway, an audit on US's gold reserve will be demanded by China to ensure there is gold to back it up. This could be the major crisis. Who will be the beneficiaries of this fiasco? BRIC. Next week will be a drama week.

Money Matters 2011.08.01 With the news of a deal is sealed by the American politician to be voted on, i.e. more drama coming, the spot price of precious and base metals behave just as expected. The precious metals are not safe heaven. Speculative on the precious metals are now subsided which creates a temporary mild pull back. Gold is holding its ground before the jump so does silver. Until the dust settles, gold and silver will not move dramatically in either directions. On the other side, base metals advance including Dr. Copper. It should also be noted that the high tech metals, (silver, palladium and platinum), are advanced too. They are needed in electronics and other high tech products. All in all, it is the sign of a good deal. Can this hold? We can confirm how good the markets discount the future by tomorrow.

Money Matters 2011.07.29 Things are getting dark this morning. The negative is overwhelming the spot base and precious metals market. The following is the quotes from Kitco.

At the end of the day, the following are the quotes from Kitco:

The situation is slightly better. Dr. Copper even gains a bit. Does the base metal market discounted the bad news already?

Money Matters 2011.07.28 Analysts often use the future of base metals as a crystal ball to see the storm is coming. American's debt ceiling is a pure artificial paper landmark in the financial landscape. Lifting it or not does not solve any credit problem. To combat debt with more debt is the only Western way. It has been applied to the PIIGS. Now it is applied to America. The only purpose to avoid the default which will force the Wall Street fat tycoon to write off the book. Without the write off they can continue to get huge pay. Not that they don't if there is a write off. If the economy will jump to a depression as some of the analysts and politicians see, the demand for the base metals should be falling off a cliff. Perhaps it will happen on the news but not this morning. The following are the prices of precious and base metals from Kitco. But there is also another major storm brewing. Most of the base metals are having multiple tops without breaking up. This is a critical moment of make it or break it. The chart for zinc is included below.

Money Matters 2011.07.24 Off prime time trading is not necessary the mainstream trading. Yet, it is great time to observe how some people are thinking. As long as the volume is respectable, the trend is tradable. Many worldwide panic started as the night trading of North American and day trading in Asia. The metal world has been returning to the East. So we should respect the precious metal direction. Tonight gold stared off with a high jump of U$18 to U$1,618. By this time, it is settle down at U$1,613. This makes the gold to silver ratio just a hair below the 40 because silver action is vicious, especially next 10 days. Oil hands tight around U$99 no matter what the analysts say.  Copper is also very stubborn. What do these mean? The Fed will be in panic mode to shutdown all these to prop up U$. It will repeat whatever is needed to kill the commodities. Only this time, the BRIC is watching with pens and cheque books in hand; ready to buy what is falling from the sky. Will Fed care about the BRIC to mop up the commodities. This is not a question of mopping up to squeeze the commodities price. Last time, it killed Lehmann Brothers which frozen hundreds of billions of commodities in custody accounts. When Fed let open a gap, woozed out some at lower than fire sale price because people need money. These paper commodities have completely detached from the reality but it will drag down the investor without making a dent to the inflation number.

Money Matters 2011.07.23 This is the best time and this is the worst time to invest. (Borrowed from Tales of Two Cities by Charles Dickens). Information is as confuse as ever. In the past, the fact or rumour can be cleared later so we can learn from the history. Now, all sealed under the seal of official. What exactly happened in 2008 that triggered the financial tsunami had very little leaked out. Whatever leaked out is scary. How could the fate of Lehmann Brothers and Bear Stearns determined by the other who were the competitors and organized by the "quasi" official body called Federal Reserve Bank who spent the people’s money to benefit this private organization. The results were causing more lost passed to the retailed investors and citizens. Marketers promote familiar and unfamiliar products such as CDO and the traditional equity. Rating agencies give out warning as an after fact rather than doing what it supposed to be early warning. Only the insiders enjoy the benefit of the facts which will be transformed to whatever spins they want to steer the market. Retail investors have very minimal chances to win. Can they survive using the investor advisors? Goldman Sachs has the track record of selling investment that benefits Goldman Sachs rather than the investors. We have IQ and EQ. Now we may want to have high FQ for financial intelligence.

Money Matters 2011.07.22 What a week for the gold bug. They celebrated and celebrated again on the passing of the U$1,600. Like the passing of the equator on a vessel, the spirit is high. The equity market continues to push on but is it? Dow Jones are just recovering but has not better the recent high of 14,164 on October 9 of 2007. This week is closed at 12,681; a 10% below the all time high. This rally should be studied carefully because the OBV is up while the volume is down. The OBV supports the price but it is built on thinner volume which should be the support of price too. The price is pushed up with less participants. This is not a rally supported by the mass investors. Does this mean the big money is not in? The second chart shows that the volume declined while the OBV and the Dow Jones Industry rally from 1932. The result was another major correction in 1943 after rallied to the high in 1937. From 1943, with the rally of the volume, we have the strong rally to the 1970. This chart also shows a change of interpretation for the OBV action. Before the 1950, the OBV and the volume led the rally. During the 1950, they were in synchronization. From 1970 on, OBV was behind the rally but led the correction. During the first oil shock in the 1970, volume leveled and fell. Could the OBV telling us it is the one to watch for the change of direction? It looks like the divergence of OBV and volume's direction is a sign on change of market direction.

Money Matters 2011.07.20 Excitement was cooled down when gold dipped below U$1,600. As discussed in previous notes, the breaking of U$1,600 has no technical significant but the psychological. Now the gold bears can come out to sing and dance. Gold had 3 very active sessions. So rather than short covering, it could be the shorties sell off for profit. On the other hand USD falls to 74 range. There will be money movement which could help the precious metals. But the killer could come from WTI's surge to U$98 range. The judgment call could be made tomorrow. Updated at end of day: The picture enhanced at the end of the day. Gold satisfies the psychologist's demand to go back above U$1,600 with silver over U$40.

Money Matters 2011.07.18 Gold closes above U$1,600. So what  happens next? The answer is nobody knows. With gold peeks above U$1,600, the psychological barrier may be broken but there is no technical achievement until U$1,737. This is like silver went up but hesitated in front of U$50. Why the levels are so far apart? It is because the base is much bigger. From U$1,560 to U$1,737 is only 11.4%. It is slightly higher than 10% which is almost the rule of thumb for any up or down movement. Even we don't know what is going on but there are some tell tale signs. First, silver follows the rally but at a much faster paste. It has broken down the gold to silver ratio to below 40 and rose above U$40. Last time, the silver action after U$40 was very fast. It took 11 trading sessions to peak at U$49 before fell back. So in the next two weeks we may see the firework again. If it falls back without breaking above U$49 barrier, then we have a double top. It will be a couple of months to break such barrier until the high season of precious metal. Is gold pushed up by weak currency? By supply and demand? Or by panic? First, COMEX's gold trade is very active for the last 3 sessions. All above 100,000. This is very high. Silver has two very active session that were more than 40,000. If the volume continues, then the rally can continue. This seems a short covering to avoid delivery. If so, after the avoidance of delivery, the price can pull back. If the pressure to deliver continues, there will be major firework.

Previously, I believe the gold shares start to outperform the metal once the gold break the psychological barrier. HUI jumps 9 point today. Now, if gold can hold above U$1,600, panic short covering will happen. When shares rise, it can push the metal high because it gives the illusion of higher demand. But these are investment demand and has nothing to do with the metal. On the record, today's commodities deserves a picture to mark the occasion.

Money Matters 2011.07.15 This not your usual week. USD although up 1 bps to 75.13 but it is at the recent high and pulled back from 76 interweek. Copper hold the ground at U$4.409 with all bad default news from Europe and America. If these two region's economy matters, copper should go down. No. Dr. Copper responds to China's continued neck breaking growth of 9.5% even after raising interest rate 3 times. We have to see what is the effect of the 4th one. We may not expect 10% but it should not drop below 9%. 9% is a very respectable and hourable growth that does not happen often in the history even for the American. However, if its only 1 bps below this quarter's 9.5%, the entertainlyst will spell the death knell. Oil is very volatile but still up by 1% or U$1 to U$97.24. All in all, gold leads everything up. Does it means fiat currency is down the pipe? People mixed up money and storage device for wealth. These are two different things. Gold is can now store more wealth but it does not mean the money is worth nothing. Money will always worth whatever the government decide because it is not the storage of wealth. It is the medium of business transaction.

Money Matters 2011.07.13 After gold made the historical high in U$ and it does not retreat. But I am sorry, due to the weakness of U$, it does not make the record high in C$ even there is an advance of U$10 or 0.7% gain because the exchange lost 0.5%. Silver should catch the eye as it gone up 2.8% for the future which is in the wild zone again. If the world economy is getting worse but the commodities continue to rally, disposable income is getting less and less. Update: At the end of the day, the gold made the historic high in C$1,523. Of course, it made the historic high at U$1,581.80. Silver has an explosive jump of 7% to U$38.13 which lowers the gold to silver ratio to 41.47.

Money Matters 2011.07.12 Gold is on the first page news headline today. It made the all time high close. This is not a easy task. The U$850 record high in 1980 was interday. At close is at U$540. Today, the close is still all time high in U$ but not in C$. It is only C$4 shine from the record of C$1522. Not a bad day when USD is at 76. Is this the story telling people that U$ is safe heaven and money moves to U$ for wealth storing or there is another reason to have gold shot high with the U$ is high too? It is not just the U$ get rally, so does the WTI and copper and NG. There is bad news; Ireland will need another bailout. Why commodities rise when the economy comes down. Where are the entertainysts? Is this the sign of inflation? If so what causes it? And the more important question is in term of what currency, the inflation is reflected?

Money Matters 2011.07.09 The entertainysts continue to "educate" the public how the U$ is inversely linked to commodities. When it works, they advertise it. When it does not work, they skip over it. This week is déjà vu again. Gold and silver up 3.9% and 8.4% week over week while USD up 1.1%. So where is the relationship. We have to separate the demand of the precious metals from the speculation. This is similar to the speculator shorting a stock which can be nothing to do with the fundamental using rumour, news or incorrect analysis. Precious metals demands have been evolved from the traditional jewelry, storage of wealth (backing money is a form of storing the sovereign wealth) and industrial usage. The new application is speculations in future and ETF. There were a form of speculation in precious metals like any thing. But the different is that the turnover is now become mainstream with huge daily volume. The speculative activities were used to be a hedging activities for a smaller group of people or miner. Now, it almost becomes a national sport in the investment world. Even with these huge propaganda machine running, the percentage in precious metals compares to the whole investment universe remains low. So when we see entertainyst compares the price in ETF to the price of future to the demand/supply of the underlying commodities, one has to laugh. If we can separate these factors that govern the price of the metals, ETF and the shares, we understand why the precious metals stocks do not have to move in synchronization. We should also want to differentiate the short term to the long term.

Money Matters 2011.07.01 Precious metals are down especially silver is -2.5% in the morning. But the base metals are up considerably like zinc is +1.5% in the morning. The investment thesis theorist may hypothesize that the U$ is stabilized so precious metals are out of fashion. On the other hand the precious metals remain very much above the 200MA. Even silver is 5% above the 200MA. So any loss  due to the gain or loss of U$ short margin has to be compensated by selling the precious metals. This raises a very fundamental question why those believe in U$ hold precious metals if U$ is the thing to invest. Or they are actually see the inverse relationship, which is much weakly linked now, so they do the paired trade of U$ and precious metals. With the weak link between U$ and precious metals, someone will get squeeze from both sizes. This is when the stock market has an unexpected rally or dip. This could what happen today. The Dow goes up more than 100 points in the morning so someone got squeeze. When stock market goes up, this is not the signal for prosperity now. It is the signal of inflation as the American or European economy are no good. We also have to be very careful about the price of commodities and see through the fog of deception. For example, Brent crude is now about U$15-U$20 higher than WTI. This is a reverse to decade of tradition that Brent is U$3 under WTI. The explanation is that the Cushing oil hub is glut with oil because it could not ship the oil to the Texas for refinery. So where the hell is WTI (Western Texas) and how far is it from Cushing that make the oil price so much difference. Western Texas supposes to be the place oil is refined. According to Wikipedia, there are 26 refineries at Texas which is about few hundred miles south of Cushing. At Oklahoma, there are 6 refineries. For the price differential of U$15-20, it is more than worthy to truck it. Before the WTI at Cushing is lower than the Brent, the excuse was the floating tank storage that drives the price down. Now that the EIA has to release oil from the strategic reserve to balance the supply. And this is not justified enough to make the price higher. Is this interesting?

Money Matters 2011.06.26 On today's Telegraph, the newspaper has a report titled "Enter the Dragon 'to save the Euro'", by a joint report of Malcolm Moor, Peter Foster and Andre Cave. This article written completely from the perspective of the Western stating that "it is in China's interest to save the Euro". This sounds the action is not heroic and a selfish action. This notion further pushed forward by the following sentence: "China ... will want a share of the West’s buying power in return." This far much better than the British demand compensation by forcing the Chinese to smoke opium. In a economic eco system, there is nothing free. China does not have to solve the Eurozone debt problem. She just has to wait for the right moment and buy out the Europe like the American use the European countries money (in form of debt during the Second World War) to buy out Europe or apply the same trick to the Southeast Asian countries or the Arabian Peninsula countries using the Arabian's oil. China is taking advantage of this opportunity to throw U$ out of the throne. In a China Daily report, "Wen Proposes more cooperation with Europe" Xinhau News Agence, Wen proposed a 5 bilateral and recipical on ecomonic, investment, culture and financial with the Central and Eastern Europe. In another word, China will help the ex-Warsaw pact members to ally with China. The natural course is to use RMB as the trading currency. In another China Daily article "" by China Daily's Fraser Cameron, it states that there is no central and united policies for China among the EU States. It further hints that the cooperation will create such a united policy. This is another way to say China will use the cash as carrot to drive the donkey.

Money Matters 2011.06.15 Is this Dante's Inferno? The market is coming down hard. With the continuous falling, the major TSX and New York indices are falling. Does it mean the end of the rally? Today is a very confused day because gold and silver move up along with USD. Silver, according to some analysts, would not move up during a deflationary and stagflation period when the industry productivity is low because silver is required almost from electronic to medical supply. Silver jumps up 1% with gold 0.5%. But the kicker is USD which moves back to the 75.55 with a leap of 1.5%. Lets examine the TSX S&P and the Dow Jones Industrial. TSX is trying to form some resistance while DJIA falls from the top. The important fact is both OBV are falling or leveling off at best. In summary, it may not be as bad for the commodities full TSX but DJIA is not good.

Money Matters 2011.06.05 USD is losing the battle of competitive devaluation, or does it? As recent as July 2010, we have USD standing about 89 which was the highest since April 2009 during the recovery of the stock market. On the other hand, we know that the American Fed's agenda is to inflate away all the debt obligation. The inflate away debt may not be the main agenda because inflation is overruling the world which is living on limited supply of resources. Everything are consumed with very little recycled. The recycling part may continue to increase. It is being advertised to death that human being start to recycle only now. This is not true. Thousands of years, human being recycle significantly as practice including the first hundred years of the American. The un-recycling when the American dumping partially used merchandize to the dump site when the national average income sky rocketed. The big enterprises do not build things that last anymore. Every product will be broken down sooner than later. Take cell phone as example, why on earth it has to be replaced, obsolete and no replacement parts for just a few months. Most of the time, any advancement could be achieved with just a software upgrade now. Android phone has the proximity hardware since the first one come out of the market. But why is it no in use but until Gingerbread which possibly becomes mainstream by 2012. Going back to U$'s value and what could happen. The earnest question is not will it continue to fall but what will its role in the future? A currency fall could be attributed to GDP, political stability and diplomatic influence. U$ was strongest during the 70s and 80s period when its military reach dominated the world then followed by the economic military reach hitting the world with all those American export. During the end of 90s, it is weakening by the lacking wars. The American's GDP falls. The Wall Street money lords started the financial war by creating different type of fear, panic, greed and demand to continue the war thesis rather than just the ammunition industry. The false success created the false security of economy that stimulated huge consumer demands. The results feed the greed of Wal-Mart to export the manufacturing to the underdeveloped world in exchange to import deflation that creates a vicious circle of consumer demands. Until the American can wane their consumption to a more balanced level to the rest of the world, it is not possible to rebuild the nation's economy from the grounds up. The GDP could grow but this is the effect of the big enterprise. A country without saving has been proved to be vulnerable to the economic stability. Down the road, if the consumption pattern does not change, the U$ will continue her fiscal imbalance. The foundation of the country will be dismantled. Britain is a good historic example. In a very short term, if the US government links the U$ the gold not using gold as reserve, it will be the best way to slow down the U$ devaluation which is a key to recovery. If U$ devaluate too fast, the export is destroyed. The import flushes out major inflation. There is no time to deal with it when the people are over taxed. From the chart, USD may have a chance to hit 70 at the end of this year or early next year. The stock market may not able to respond to the devaluation with the same speed of value gain. These engineering maneuver does not really create wealth. The positive effect will be temporary. Should the government ties the U$ to gold, the U$ could win back some prestige to be the world's major settlement currency but not the only one. This will throw the gold bug a curve ball.

Money Matters 2011.06.04 After a very volatile week, the judges are still out. But they are not for lunch, probably a drink of water. There are orbits for the PIIGS and BRIC. The PIIGS go down and the BRIC go up. There is one common strategy for both; try not to follow that direction too fast. All the PIIGS news are not new. They have to walk the economic deteriorate path. If they run the full course, there will be systematic risk for the western bankers. The function of weeding out these greedy bankers will not be performed because of their self preservation and they are able to do that. As the result, more money transfer from the tax payer to the money lord. The world is very unbalance. For the BRIC, their thrifty strategy of saving and producing pulling many lower class people to the middle class through export. The middle class starts to pick up the consumption part of the demand equation. The result is reduced dependencies on the export while the West starts to reducing the consumption due to the shrinking of disposable income through higher tax, higher inflation, lower exchange rate and so on. When 10% of the population consumes 25% of the world resources, it not necessary wrong. This is typical because the world is not fair. You can not say this is inbalance. The rich always consumes more than the poor. If one can be the student of history for a moment, we know the level of wealth is moving around every geographic area around the world. During the queen Sheba period, Africa's Ethiopia was strong and wealth. China was strong during the first and one half millennium until the rise of the Christians. Without question, the frame of reference for the western scholars will use the rise and fall of the West as the main stream analysis premises. This breaks down during the end of the last century when the world is flat. This mode will not be broken easy until one authority wake up.

Money Matters 2011.05.19 If you predict only one side of market action, up or down, you going to hit the nail on the head. When that happens, you could quote in the future prediction how good you are. Therefore, investment houses are required to disclose the percentage of bullish and bearish rating of companies. But there is no disclosure on how many time bull/bear forecast put down and duration of these period. If there is no self promotion later but analyze what gone wrong then it turns a phony operation to a genuine learning exercise. When copper goes up, people quote Dr. Copper to forecast the bull trend is in tact. However, if it pulls back due to normal market action, they forecast the bear is back. To perform a true analysis, the verdict should decide the change is a pull back or top. There is also another trick entertainyst exploits to help their accuracy by saying watch out "it could be this or that". Every one knows it is either up or down. All these tricks are employed by many. On the other side of coin is that technical analysis is attacked to be voodoo magic because it says the wind changes direction when the value breaks up or down at a certain level. Many time, it happens but turnaround in a few days. So what could be an example. Copper (future and spot) broke below the 200MA. This signal a bearish fall. But in 4 days, it is up and broke up the 200MA for both the future and spot. With all the programmed trading that keyed to the technical event, it is possible to trigger a massive buy or sell by a concentrated buy or sell. Therefore, we need the help of the fundamental to see through the fog of money. The market anticipates a lot of fear when Denis Gartman tells the world that Glencore is cashing out. He goes on to say this is the clearest signal that commodities is top. But looking a the demands from the BRIC, it is not easy to see why. With Dr. Copper recovers, this could be end of the correction. One more indicator, uranium spot is up U$1.25 this week. This is not a weak sign.

Money Matters 2011.05.08 Today, commodities rebounded. USD did not because it is on a row to climb. When U$ and commodities move in Unisom, something is wrong. If I were the bear that pushed down the market, I would like to make it bound a little to trap the bulls. So why not wait a bit more until the air is clear. Don Coxe on his Basic Points said that when a bull market like silver relied on the rumour there was a huge short which would be squeezed was unhealthy.

Money Matters 2011.05.07 Has the commodities correction finished? The implication is when can we safely get back to the market? If this is engineered or not will dominate the thinking process. Should this be the natural course of the market action, we should check against the input factors such as economic status and the balance of demand and supply. If this is an engineered activity, we have to see the vehicle to deliver this correction. If the delivery mechanism has run its course and the butterfly effect has settled, we know the bottom has been hit. Lets assume the event is triggered by the dumping of silver. COMEX shows a very high concentrated selling from last week to this week. The activities were subsided on Friday. This wave is finished. Will there be another wave. If so, when will it happen? With the silver fell over one third, all margin will be called; the hell broke loose. Why does the shortie not push it down further? Is it because anything further will create a systemmatic melt down that create problems of his/her own wealth? Or, is this really an economic motivated action rather than the retaliation of bin Laden followers? All of these have to wait and be answered. What we could see is that the equity that has silver as underlying asset did not lose a much yet. This is the early stage. If it is over, the precious metal stocks will rebound vigorously. It should be note that during this war energy stock suffer least. They are out of sync with the 15% lost of the crude. CESI included below shows a dip of 23. or 3.5% which is only a small fraction of the oil drop. This indicates the reality and the speculators are detached. However, if the speculators can hold down the crude future long enough, the selling price of oil will drop so will the energy companies' top line. The crude future's volume was double of the 200 day average. It will be important to see the crude does not increase volume while the price continue to plunge.

Money Matters 2011.05.04 As far as the war of competitive devaluation, U$ is winning. The question we should examine is why? Is it because of the direct interference or the consequence of the losing the value. April is a very important month only second to December because of international settlement for trade current account. U$ is demanded to pay the balance. The decline of the USD is continuous and continues to breaking support downward or lacking the evident of any support at all. If this is in conjunction of rising commodities, it could say the reallocation of asset. For last few days, both commodities and U$ fall together just like some days they all rise together. The thesis of asset allocation does not hold. The money has to move from one spot to the other. This is like a two dimensions being observing the disappear of an object on a pane while this object is travelling to another spot of the same pane. It is the hidden and unidentified vector of influence that could not and should not be explained by guessing which will contaminate the thinking process.

Gold 2011.05.03 When the window of opportunity is closed, it could open wider. It could be so wide that it falls through. This is a dangerous example; silver lost almost 20% to finish about U$41 today. The usual rule of thumb for correction at 10% level will give you a fit when it falls 20%. Can you say it is bottom today?

Gold 2011.04.28 Silver has been ballistic as identified on 2011.04.18. It becomes daily high every day except last two days which was a correction. If trading out two days ago and want to a further down to buy back, the window of opportunity closed in 24 hours. In the coming days, silver could break the U$50 major psychological barrier. Once broken, many retail investors and follower can easily pushes silver to U$60. At U$60, after another 20% gain, there is the really resistance due to profit taking. This will the moment of true to test how much the correction will be. Today the RSI was dropped from 2011.04.18's 93 to 79. Some steam has been blown off. Lets see if the RSI continues to push. If the rally continues, RSI will rise. The question is how fast silver is going to rise.

China 2011.04.25 China's story, even spells out explicitly, Western experts still misread the message about inflation control. The guiding principle of Chinese government is simple; control only applies to the speculators, not the low income. The high percentage of retired civil servants remains living on the meager retirement pension with minimal adjustment. The decision is correct not to index to the real inflation rate because it is hard to measure and the base of these pension is too low to do any real benefit. The major expense on pension is huge. Any unrest arise from the dissatisfactory retiree will be violent. So the price control comes in handy. With the huge foreign exchange reserve, China's price subsidize to low income  can be wide and deep to reduce the impact of the inflation. For those speculators, we shall see more measures to increase the cost of investment and restrictions on what could be invested.

Gold 2011.04.18 The precious metals are really strong. Gold and silver made new high not because of U$ weakening; on contrast, it is when it bounded back 78 bps which is enormous when America's outlook is being downgraded by Standard & Poor. All these are completely incoherent. As the result gold and silver made new high in C$ too. On the contrast, the precious metal stocks are not doing as well. Many fall only the lucky one is up. Silver Wheaton may be on a tear so that it has to pull back. But when silver is advancing? This shows investors are chicken out and like to cash out. This is not the sign of a bubble or over price.

Gold 2011.04.15 Finally, there may be some good news for Canadian gold bug. This morning the near future gold in C$ hits an all time high of C$1,431.65. If the record maintains until end of the day, this is an important milestone because the previous record was set in December 2010. Updated at the end of day: The gold in C$ has the all time high close at C$1,434.29. So this is not a double top. This break through is more important than the string of all time high in U$ which is deteriorating.

Money Matters 2011.04.07 While USD is falling close to 75 but it does not mean USD will fall through the floor quickly. It is just not going to happen in the very near future although it will when the U$ is unseated as the world's only trading currency. There are rising stars: the Chinese RMB for the South East Asia, the Euro for the EU and the Near East and Africa where French connection is high, last is the worldwide Yen of Japan. The fall of USD has to be the result of rising Yen, Euro, A$ and GBP. GBP could be an non-issue because it is free falling so it will not help the fall of USD. A$ is very helpful because it is commodities based currency like C$. Yen has been helped by the natural disaster to devaluate so USD is propped up. Eurozone is haunted by the PIIGS but others Eurozone countries are recovering especially Germany. After the exciting yearend settlement, the U$ demand will take a breath. The USD will win the devaluation war because it will continue to let inflation unchecked by keeping the interest rate low when other country could not afford that. While the USD does not fall, the buying power is vanishing not so much to the inflation but the lack of deflation. Medium to store the wealth will be on demand. In another word, all tangible assets are on demand. When the deflation weakening, it is different from inflation which we have to be very carefully differentiate the situation because the result could be very different.

Gold 2011.04.05 Today should be the critical moment for the precious metals for gold hit another all time high in U$. It is also breaking the psychological barrier of holding pattern around the U$1,400. Technically, gold is just into the overbought area. If the momentum carries, there could be room to be sideway or up. As for silver, it is extreme overbought because it made two 31 year new high in a row. Gold is just a pop which indicates some sort of squeeze. Silver is just a grinding stone that started a rally at U$14.65 since February 2010. If the U$B silver short is true, the squeeze is on. The gold silver ratio is just above 37. It looks like it could break down below 37. As soon as all these wonderful climax, we should prepare the empire strike back that pushes down the gold and silver. With the USD hovering 76, this means everyone is rushing to the bottom for competitive devaluation. Precious metals will be a better choice of store of wealth so the demand will be high. For the gold bug, it may be the time to sell in May but if the QE 3 shows up, there is not time to go away for vacation. Today, HUI went up 5%. This is huge. CGSI and UGSI both went up 4%. This should be one of the top 95% movement date.

Technology 2011.04.03 On April 2's New York Times, there is an article describing how bad the Fukusima Daiichi nuclear reactor of Japan, From Afar, Vidid Picture of Japan Crisis by William J. Broad. It outlines the forensic science to analyze the situation could be traced back to 1979's Three Miles Island incident. The analyze reveal how bad the internal meltdown was using modelling. By feeding the observed fact into a simulation model, the forensic analysis could provide events by events sequence, duration of the events and other details such as temperature, amount, and pressure.  The intriguing part of the article is the methodology used by Micro-Simulation Technology of Montville, J.J., is simpler than most industry simulations. These modelling techniques serve two purposes. The first is to provide a safety analysis on the design without going through the real events. Many industrial certification had going through physical test to validate the data. For example, the fire resistance of a material is certified by burning. The strength of a re-enforcement bar is certified by breaking it. This is not a viable solution for many industries and scenario like the nuclear or aerospace because the event may nor may not be reproducible at a reasonable cost. As an alternative, a very precise and accurate modelling exercise is used. Second is to post-mortem analysis. Physical post-mortem could be impossible because the actual evident could be destroyed during the incident. For example, the high temperature could burn away the liquid and the casing the provide the telltale of how and what have been happened. This is the place where simulation becomes handy. All simulations are the combination of using known equations, statistical model or multimethod modelling. These methods apply an equation when it is available if not it uses a recomputation of next step by model what could happen during a minute slice of time that similar to numerical integration and differentiation in calculus. Will this be the first step to let the machine to create a virtual world that we rely on?

Money Matters 2011.03.24 Today, gold and silver made new high or all time high. Oil stays firmly above U$100. It is not without attempts to topple it but failed this time. USD is sitting on a huge head and shoulder with 50MA and 200MA pointing downward. Stock indices may rally but this could be temporary. If stagflation settles in, the stock market will sink. Gold to silver ratio is now firmly below 40. Copper is back to U$4.40 level. Even NG is staying above U$4.00 before May. Friday will show how much the traders believe the commodities are on.

Energy 2011.03.20 Energy is never too far from politics. Energy does not control the mobility but also the source of financial. Energy producer rarely bankrupts because it has price power. Saudi got rich but the American oil companies got richer at the beginning of the Twentieth Century because the black gold was sold to the American at dirt cheap price. Nowadays, it is still selling a the below price. Just a simple calculation. The price of oil as about U$1.00 at 1900. After One hundred and ten years and with a inflation rate of 4%, the price will be about U$75. This is based on the ample supply without any additional cost of finding and development; not to mention about the higher expensive oil. With all the additional factors it could easily double the price. Why the second part of the argument is valid? The oil pumped out at the beginning of 20th Century was basically free-flowing from underground or required very simple pumping mechanism with oil was located very close to the surface. This is contrast to the kilometers deep of oil now. This is not a new phenomenon that oil owner want to sell higher price while oil producer want to buy low and sell high. A simple way is to use political power to suppress the selling price and use the pricing power to sell at the high price. The situation can exist if the government support the low production price which could be different from the real cost. Iran was been an oil producing companies with little government owned producer during the Czar period. As the people wanted to take the oil back, there was a political change. Iraq followed but Iraq's oil problem was 'helped' by the West (i.e. American and British not the French who has French oil producer in Iraq) to liberal the country. Libya is just another oil rich country which has many foreign owned oil producers. When the people wants to take back the oil ownership by removing the government that support foreign oil ownership, the Ally moves in. This is Western Shamanism. This is interfering of the internal affair. If American led Western Ally continues to operate this, the community of Non-American Friendly will be grown by the BRIC led by China. However, if the Western Ally does not take action, they will lost the oil field in the Libya case but will not accelerate the lost of those not in the pipeline.

Money Matter 2011.03.14 The earth quake at Japan has stopped. But the earth quake at the world's stock markets seem just started. Yesterday and tonight, the Nikkei falls about 6%. This is a great opportunity to squeeze down the gold price but precious metals are fairy firm. Only pull back slightly and bounced back a bit; small fluttering. Will the world markets pulled down by this natural disaster? Analysts are flip-flopping on the impacts. Without questions, assurance industry experiences the heaviest blow because of the pay out. When such heavy lost experienced, premium will increase; this will percolate more inflation. This inflation does not stimulate economy. It is deflational because it squeezes out disposable income. Because of the market fluctuation, money will be lost. Lost money will create impedance to the money velocity. Infrastructure rebuilt could easy the viscosity but the consumer will seize up the spending in Japan. At the end, if the impact could be localized in Japan, the impact to the rest of the world could be reduced. This disaster creates panic fear in the uranium industry. Generally, uranium stocks drop from 15-25% in one day. The long term demand will not reduce but this is not same as short term. The massive fluctuation in the stock market will be parallel to the size of tsunami. May be Richard Russell is right; when you know now what to do, do nothing.

China 2011.03.13 The world stock market experienced a 5.0 quake after the Japan's earth quake on Friday early morning. The considerations were the slowing down of the Japanese economy that could cut short the world's economic recovery. As the damage statistics emerged, the destruction was serious, death tolls were mounting but the infrastructure was quickly stabilized. This is destruction of wealth in huge scale. All properties and assets lost will be replaced. The lost of productivity and the insurance companies will suffer financial lost due to huge payout. Japan economy suffered from the stagflation during the last two-three decade because saving was sky-high, real-estate was also sky-high but price did not change and the people's living standard did not advance. While economist continues to rate Japan suffering from deflation but everything is so expensive that people could not afford it. The money supply is plenty because of low interest rate but still there is no results on stimulus because of the low disposable income. If there is real deflation, the price should be much comparable to the international price of the food, real-estate and discretionary. We read the report of how the social welfare system in Japan is broken that caused many old age citizens starved to death because the financial supplement could not meet the living standard. This is a contradiction statement of deflation. The facts draw to a conclusion that the Japan economy is not in a deflationary cycle. It is in a inflation cycle that slows all the money velocity. The only chance for the companies to make money is not in Japan through exporting, high price or not. Japanese yen's high value does not necessary translate to lower export. Forget those numbers. They only quote the statistic to scare people. Now the infrastructure has to be rebuilt. The money velocity is not limited by the price tag. This could be a sad example to say that Japan could emerge from the stagflation cycle through the quake. Who would be the beneficiary? First, Japan has a very strong tie with China at the government, investment and social level. Although it is very difficult to migrate to Japan, there is a huge population of Chinese heritage. This due to the historic linkage starting from the beginning of the modern China. One of the less known fact is that the Chinese high-tech industry is pretty much helped by the Japanese who exports the slightly older generation technologies just lower than the state of art technologies. There are many manufacturing equipments owned by Chinese factories are supplied by Japan. The maintenance of these equipments are under the terms that they are maintained by Japanese technician only. As time goes by, these dependencies will be eliminated when the Chinese high-tech industry get more mature. But the result will be a reverse flow of investment and technology export due to the business relationship. Take Taiwan as an example. During the 1980's, Taiwan businessmen invest in China. Now their partners invest in Taiwan. This is a great opportunity. In the coming years, Japan may win back title of world's second largest economy when America falls to the third. Before that happens in coming decade, Japan and China could share the second place many years because of this quake. During the Szechuan quake, everyone believe China will have a major setback. The result is higher domestic GDP that took over the export. As long as there is saving for the country, the economy could not be too bad.

Money Matters 2011.03.09 It is just amazing that while the commodities are rising but the USD is not falling. Of course, USD is indexed by other currencies which try their best to rushing to fall. The 76 USD has been holding. As long as everyone dancing to the devaluation music, USD could hold on at this level for a very long time. What thus this means? RMB will appreciate through its minute range permitted by the government. Even with this minute range change, it will appreciate. This provide higher purchasing power for the RMB that means higher demand on commodities. Oil price is seen being the threat to the "world" which means America, not even North America because Canadian dollar and economy is so healthy that it could withstand all the curse from all inflation threat. Inflation is one of the major growth engine; deflation is not. The hope of analyst to avoid inflation is not a realistic economy fact. Cycle of inflation creates the opportunity of forward investment for next economic growth area. The excessive inflation, i.e. over 6%, is a fact of life the industry have to embrace rather than complain. Manufacturing is a battle field; not a greenhouse. I repeat the story that U$ was the strongest currency after the second world war and inflation in Japan went through the roof at the same time. Both created two economic strong men. Economy could not be judged through a pipe. It is a global picture even in the Medieval period (remember the silk route?). Without question, excessive inflation will create heavy casualty. This nothing new. If it is not inflation, it will be tariff and so on. Some industry will wither because there is no way to optimize the productivity. So let it be. Strive where you can. Analyst has to throw away one dimension thinking. The world is flat so at least use two dimension. With the backdrop of global economy, there at least a handful of dimensions for any proper analysis. Look at China as example. She grew through the cycle of minimal export to low cost manufacturing by winning business from her neighbour such as India, Thailand, Malaysia and Indonesia. Nowadays, she passes the baton back to them. She grew from the point of no FX reserve to the king of world's FX reserve. Economist should start to work rather than waning.

Money Matters 2011.03.06 Once a while, you wonder why there is a large production documentary talks about facts that seem untrue. The 2010 Oscar documentary winner "Inside Job" is one. This is quoted from the IMDB.com: "Takes a closer look at what brought about the financial meltdown. ". In this Sony movie, the sheriff Eliot Spitzer, fund manager George Soros, professor Nouriel Roubin, were interviewed. It also disclosed how the banks helped to launder drug money, help diverted money for Iran's nuclear program, Freddie and Fannie overstating their earning at hundreds of millions, big banks helped covered up Enron rather than exposing, a very concise description of CDO and CDS. Time will be well spent.

Money Matters 2011.03.05 The tale of two precious metals; gold and silver. Gold made all time high but the rally is not as spectacular as silver. The following two charts show the demand pattern. The GC-F chart is the NYMEX gold while the SI-F is the NYMEX Silver. The OBV shows how much the accumulation or distribution is. The rise is accumulate and the fall is the distribution. These OBVs are normalized with the high and low of the price in the chart. So it is much accurate on telling the demand and supply. The gold OBV shows continuing the accumulation but there is sign of distribution or profit taking. The silver OBV is a sudden leap forward showing a demand jump. For industrial demand, this is not a normal sign because industry would not buy at peak unless high peak is coming. There is alternative explanation for the steep silver OBV, short covering. If the rumor of million silver short outstanding, there will be long way to cover the silver short or a long way to cover the short. The longer the way, the more panic buy.

Money Matters 2011.03.02 Now that WTI rises above U$100 with Brent above U$110. Is WTI supply in surplus? The following charts show there is continuous sell-off of WTI to keep the price down or the famous word shorting. If the chart is right, the WTI is suppress to keep the price down not necessary glut. Brent continues to rise without the sell-off. When the price is high enough, the shortie will have cover. This could trigger the catch up with the Brent. The short covering can create an explosive rally. The right chart of Brent shows the continuous buying can come to a halt or level off.

Money Matters 2011.02.27 Monday could be the judgment day of many longie or shortie of WTI. Brent continues to rise. WTI could not be held back too long. The supply and demand remains the ruler of the universe. Libya only supplies 2% of the world oil. The rest of the Africa is not the major oil supplier to the North America. The biggest beneficiary are China and Japan. Saudi UAE always claim they can pump additional a few percent on demand. Why there is panic unless oil has been short for a long time while UAE could not pump any more. Matt Simons' Twilight in the Desert reports that Saudi has peaked their oil production. Their reserve is less than they claim. There is no real oil glut. Can the world survive oil shock? We had been enjoying ridiculous cheap oil squeeze by the American. This does not mean it has to be staying there forever. European learns to drive small and more efficient car. American does not. One could not continue to use the influence to keep the price down for their extravagance oil consumption. Move back to the city and don't live in single house; live in apartment.

Money Matters 2011.02.24 WTI price shots up to U$100 and Brent above U$114. So where is the oil glut. Libya only provides 3% of the world supply. It is heavily guarded by the oil companies militia even Qadaffy could not enter so what is the exposure? The exposure could be the pipeline which is not operated smoothly anyway because of the local stealing oil and the insurgence attack. The bottom of all these market panic origin from two pole of information. People being jerked from oil slut to oil supply interruption. The panic was further exaggerated by saying the spread of oil supply interrupt to the rest of Africa or even Arab. These are just pipe dreams. This is part of the market manipulation. Media should be more rational and more analytical and more critical on the facts rather than sensational reporting. Oil supply should be tight all the time. All these oil glut are smoke and mirror to hide the true of oil supply. The market maker makes money by swinging the market. News is the vehicle of the swing. How can we know supply is tight? The WTI contango is always there. Small retailers should be very careful. After the oil, natural gas will also have a major price swing without any change of the fundamental.

Money Matters 2011.02.23 Libya is Africa's major oil supplier. Egypt is not. During the unrest in Egypt, the worry of suspending the use of Suez Canal that slows the supply to America sounds a major help to the up rally of the WTI. Looking closer you can find WTI was above U$90 along with the rally of Brent. At the same time, why no body use the floating oil tank that alleged to cause 'flight capacity' problem? Libya has many foreign oil companies but their are not the suppliers of America. Europe is the customer. All of them are under heavy military guard. No matter who is in power, these oil facilities will not be touched because the government in power or the tribes will benefit from the oil tax. The evacuation of the European is a natural move for any unstable political situation. It does not mean oil facilities are under attack. The biggest lost of supply in Libya is the insurgence that attacks the pipeline. So whether Qadaffy is in power or not these insurgence or local people continue to steal or attack the oil. This is another example of moving the market by commentary not by news. News are neutral the interpretation changes the sentiment. With the higher oil price, inflation will follow suit. Entertainyst forgets they insist inflation will float the market. The latest spin is higher oil price will hurt the economic recovery. But which economic recovery. The BRIC economy will continue the demand at any price. They are the engine of growth. American is the world's biggest economy. But it will not reduce the oil consumption due to the strange reason and switches to natural gas which in excess supply and dirt cheap. Why the market crash? There is a dimension we have to consider. Most of market participants are still on margin. When the oil and other commodities prices gone up, these shorties are squeezed. So they have to sell something that have gone up quite a bit. The short squeeze happened conveniently when the COMEX is not traded. The electronic ICE could do transaction far much faster, the flash order. This is another episode of conspiracy.

Money Matters 2011.02.21 Overnight, the rally of oil and precious metals continues with natural gas lonely left behind. Brent is not traded until later part of the day. Whether it will catch or not will be left to be seen. So far, the sprint of prices are extreme. Copper is going to shoot for all time high again. Gold recovered back to U$1,400 level. The most worth noted is silver. On Feb 9, gold silver ration was 45. Last night it was 42. This morning, it dropped below 42 despite of gold's strong U$14 jump.

Money Matters 2011.02.20 WTI closed at U$86.20 on Friday while Brent was U$102.52; a spread of U$16. Anyone has any common sense will know that all those 'surplus oil stored on the supertanker just park off the coast'  should turnaround and set sail to Europe to capitalize the spread. This spread was not just only a day, a week. It was building up since beginning of January when the spread was U$3.00. Any surplus oil should send to Europe. If someone says that Europe could not use those oil because there is a contract. The contract was drawn when? When it was U$30 or U$40 with a mark up of U$102? These fluctuation is very suspicious. Tonight, the WTI jumped U$5.00 when tomorrow is a holiday at North America. Now, who is willing to pay U$5.00 more a barrel of oil?

Money Matters 2011.02.09 Silver quietly recover above U$30 and the gold to silver ration slipped under 46 with gold to oil dropped to 15.70.

Money Matters 2011.02.06 When we assess the change of an asset, what is the trigger level for action?  In general there are two dimensions; the percentage and the $ value. This is valid when the price range falls in a certain boundary. Out of the boundary, it does not apply. Consider a penny stock with two cents value and the minimal price increment is half a penny, the minimum percentage change will be 25%. In some case, this is good enough to take a profit or cut the lost. However, this will not necessary the case for this penny stock. We should reference to the volume and fundamental material changes. In another case, when a stock is at $20,000 like the Berkshire Hathaway, you can make a profit or cut the lost if it change just 0.5% for the day trader. By the same token, does the correction of U$120 gold shows the weakness of gold? My view is a definitive yes. We talk about the gold price (not the ETF price) is actually the contract price traded at the COMEX or LME. The margin does not change along with the price. So the major impact factor is the $ value change not the %.

Money Matters 2011.01.31 Financial market has many dimensions; precious metals, base metals, banking, bonds, stocks, real-estate, economic productivities, etc. All of them should be in phase if they have the same cycle length. Because they don't, once the market is in motion, the begin and end of the cycle will not necessary to be aligned. This make some of the dimensions become the lead indicator but some lag indicator while the market is somewhere in the middle. Last week's precious metal remark was that the gold bottom was not firm while it enjoyed a rally of U$20+ on Friday. Such bottom's confident is discounted by the Friday effect which means everyone will try to balance the book with minimal long or short carried through the un-traded two days of weekend. This morning, gold continues the fall but not as severe despite the unrest of Egypt. Egypt's unrest has been regarded as the fuel to the gold recovery using the traditional wisdom. This is a single dimension thinking. The modern world has grows out of single dimension thinking. So there is break down of the analysis. It is not to say the analysis is invalid. It is the premise. Analysis is based on the premise. When the premise is not set right, it is like building a house on an unsounded foundation. Who changes the rule of the game? It is the market. There are more players and wider geographic. So what the market tells us. The unrest at Egypt could have the butterfly effect to impact the rest of the world. One immediate effect is the oil from the Middle East which travels through the Egyptian controlled Suez Canal. The supply may slow. As the result, WTI traded as high as U$90. However, this ignore the fact that this oil are to Europe. Brent has jumped to U$96 range last week because Brent is local oil. The oil market has discounted the effect of Suez and jacked up the Brent price. To North America, all the 'surplus' oil will have a chance to put in good use. There should be no panic. If the WTI rises, we can gauge how much 'surplus' oil is there.  

Despite of all these confusion, we can take a look of the spot metal markets; precious and base. The following table, captures the price at 8:00 a.m., shows that precious metal continues to fall which could be a cashing out due for longie as discussed a few days ago. The interesting is the long term economic view hinted by the base metal is a much healthy look. The conclusion could be that in the short term the tug of war between precious metals longie and shortie goes on but the base metal telling us the demands remains healthy. At the end of the day, the picture could be interesting. Updated at the end of the Day: How does the metal market does today? The lower chart is the price at the end of the day. Position changed hand slightly. Base metals remain to be the gainer and the precious metal lower. USD Index does not change. The trend holds. It will take a few days to settle.

Money Matters 2011.01.30 What is the different between the financial market and the supermarket? We do not see the supermarket merchandises move down a few percent and the jump is not that often. It is usually gradually. In the financial market, the change could be from a few basic points or a few times. For example, the Fed's rate is 0.1% to 0.25%. When it moves to 0.50%, the change is 240% or 100%. This change in supermarket does happens when produces supply is down. Grape could be $4.00 a pound in the winter when U$2.00 in the summer. Lucky us, we have two hemispheres, when the North Hemisphere is in winter, the South Hemisphere is in summer. This balance out some supply. The price fluctuation is the result of the transportation cost added to product cost. The supply is further moderated by the controlled growing in various forms; green house, hydroponic, or covered doom in the field that can be close to consumer. The cost could be cheaper than growing in the open field because it does not involve the sheltering materials and the energy to do the climate control. Again, the equation's major parameter is energy. This important parameter does not change the price of the merchandize rapidly because the cascaded influence is delayed. This does not happen to gasoline. When the crude's price changes or the refinery has accident, the price change. The relationship between the crude and the gasoline is not a hard and physical link. The link is psychological with the producer taking advantage of the situation. From this discussion, we see artificial influence (including psychology) on the price is far much more than the actual accounting effect. This provides a gleams at the randomness of the price movement is not that random at all. The randomness is the amplitude. So where is the amplitude randomness coming from? The randomness comes from the complex response to each individual that governs by the past experience of the individual. At the very end, it could follow the main trend but during the process, we have to identify what would be the fair lower bound of the price and the fair upper bound of the price. Action can be taken when the bounds are exceeded. Now a question generates another question; what is the fair value of the piece?

Money Matters 2011.01.25 USD is falling, precious metals are falling, base metal is falling, crude is falling. Who is the winner? The shortie. The relationship of lower commodities when USD gone higher is gone. USD has fallen from 81 to 78 now. The downward momentum is building not diminishing. So does the commodities. Commodities had their run. When the paired trade of USD falls, the short margin call of USD must be covered by the long. So the commodities are dumped. This is good for the market because this curb paired trade since the favourable relationship is dismantled.

Money Matters 2011.01.21 Canadian oil producers have a lot of suitors showing up at their door steps today. A few of them has very high volume. This stages a strong rally or fall. It is more likely to be a rally because other than BTE, others are closing higher.

Money Matters 2011.01.16 Is oil rising too fast? From the bottom at the end of 2008 to now seems to be. Short term is deceptive. The following is a chart showing the price of WTI since 1998. The top trend line shows that during the 2009, the jump is abnormal. The current WTI price level is below the trend line. Higher can be expected. The top could be above $100.

Money Matters 2011.01.05 On the second day of trading, the commodities are "sold off". In general, the fall by 3-5%. The volatilities of the commodities remains to be gauged by amateur with irrelevant method. A asset is sold off when it is being sold at a much lower rate than the normal fluctuation. If an asset moves within a 5% commodity channel, a drop of 3% is not sold off. During the period from 2009 to 2010, the maximum gain in one day is 5.06% and loss is -4.16%. Gold dropped 2.5% yesterday. It cannot be regarded as the small but definitely not panicky. Gold's recent rise is too fast and too high so it deserves a correction. It should not confused with the sudden rise of U$. C$ is on par with U$. But the USD basket of currency is pretty much lower due to their economy is either deteriorating or being drag down by other such as Germany. The following chart shows USD is trading within a horizontal channel and the short term 50MA is on a up trend. We should not be surprise to see more strength of U$. U$ should be weaken to strong currency such as C$ and A$ but USD could very much remain within a trading channel between 75 to 88.