Also, U.S. money supply is growing at a robust 10 percent year-over-year, greasing the wheels for America’s economic engine, which showed 3.7 percent growth in nominal GDP in the fourth quarter.

What was the spark that lit the bottle rocket and sent the fireball into the sky for the economy?

The Wall Street Journal recently reported U.S. corporate tax receipts as a share of profits were at the lowest level in 40 years. Corporations paid a tax rate of 12 percent on profits during the fiscal year that ended September 30, 2011, less than half the average rate companies paid from 1987 to 2008. They employed a tax incentive known as “bonus depreciation” allowing businesses to deduct the capital that they invest back into their businesses.

At the same time, capital expenditures for American companies reached $1.5 trillion in 2011, up 10 percent from 2010. This is the third year in a row of increased capex spending.

There appears to be a multiplier effect here: As corporations pay fewer taxes, they can deploy additional capital by expanding their businesses and purchasing new fleet vehicles, machinery and data systems, which then creates and maintains thousands of jobs for American citizens.

It is unlikely the U.S. government would have achieved the same return on investment and multiplier effect on the economy.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Written by Frank Holmes

A Spark That Lit the Economy is an article from:

After prices fell 10 percent in December, many investors wondered if the bull market in gold was running out of steam. That was before Federal Reserve Chairman Ben Bernanke swooped in with a “red cape” and fired the bulls back up. Since the Fed reassured the world that interest rates will remain at “exceptionally low levels” for another two years, gold has jumped more than three percent.

UBS described the situation simply, “if investors needed a (further) reason why they should be long gold now, they got it yesterday … a more accommodative policy is a very good foundation for gold to build on the next move higher.”

To gold bugs, two more years of near-zero, short-term interest rates means negative real interest rates are here to stay, and this has historically been a strong driver for higher gold prices.

Bernanke and the Fed aren’t the only central bankers in the fiscal and monetary bullring. Brazil has cut its benchmark interest rate a few times and China lowered its reserve rate for banks in December. According to ISI Group, 78 “easing moves” have been announced around the world in just the past five months as countries look to stimulate economic activity.

One of the main weapons central bankers have employed is money supply, which has created a ton of liquidity in the global system. Global money supply rose 8 percent year-over-year in December, or about $4 trillion, according to ISI. I mentioned a few weeks ago how China experienced a record increase in the three-month change in M-2 money supply following China’s reserve rate cut.

Together, negative real interest rates and growing global money supply power the Fear Trade for gold. The pressure these two factors put on paper currencies motivates investors from Baby Boomers to central bankers to hold gold as an alternate currency.

Adrian Ash from Bullionvault says global central banks are on a buying spree and they have been since the Fed cut interest rates by 25 basis points in 2007. Central bankers’ shift to buying gold was a significant sea change for the yellow metal.

You can see from the chart below that official gold reserves have historically been much higher, averaging around 35,000 tons. In the 1990s, central banks began selling, with reserves hitting a 30-year low right around the time the Fed began cutting rates. Adrian says that gold holdings are now at a six-year high with the current amount of gold reserves just less than 31,000 tons.

These are countries large and small. In December, Russia, which has been routinely adding to the country’s gold reserves since 2005, purchased nearly 10 tons; Kazakhstan purchased 3.1 tons and Mongolia bought 1.2 tons. UBS says “although reported volumes are not very large, it is still an extension of the official sector accumulation trend.”

Not all central banks are recent buyers, though. The “debt-heavy West” has sold its gold holdings, while emerging markets increased their gold reserves 25 percent by weight since 2008, says Adrian.

Reserves as a percent of all the gold mined has also declined, with “a far greater tonnage of gold … finding its way into private ownership,” says Adrian. Since 1979, you can see the percentage of reserves to total gold has declined at a much faster pace as individuals increasingly perceived gold as a financial asset.

Adrian points to China’s Gold Accumulation Plan as a recent example of this trend. A joint effort between the Industrial & Commercial Bank of China (ICBC) and the World Gold Council (WGC), the program allows Chinese citizens to buy gold in small increments as a way to build up their gold holdings over time. The WGC reported in September that the program had established 2 million accounts during its first few months in operation and the amount is growing by the day.

These programs open the door for gold as an investment to a whole new class of people in China but that’s only a fraction of the tremendous demand for gold that we are seeing from China. In addition to the Fear Trade, gold is driven by the Love Trade, which is the strong cultural affinity the East, namely China and India, has to the precious metal.

In 2010, the Indian Sub Continent and East Asia made up nearly 60 percent of the world’s gold demand and 66 percent of the world’s gold jewelry demand, according to the WGC.

Indian jewelry demand has historically increased during the Shradh period of the Hindu calendar, but last year, high prices and a volatile rupee kept many Indian buyers on the sideline.

If you thought $1,900 was too much to pay for an ounce of gold, imagine how Indians felt when the rupee fell against the U.S. dollar, causing a gold price spike in rupees. Gold in Indian rupee terms rose more than 35 percent from July to November, roughly three times the magnitude of gold priced in U.S. dollars, yuan or yen. This currency swing significantly impacted Indian gold imports, which dropped 56 percent in the fourth quarter, according to data from the Bombay Bullion Association.

“Indian buyers will be back” after they adjust to the higher prices, says Fred Hickey. In one of his latest editions of “The High-Tech Strategist,” he cites late 2007 as a recent example when the Indian gold market experienced a similar rough patch. That year, gold demand in India fell off a cliff after prices spiked more than $1,000 an ounce in one quarter, tarnishing the country’s love affair with gold for a “brief period.” Fred says their cultural affinity for gold as an important store of wealth and protection against inflation will drive Indian buyers back into the market.

The trend was already changing in 2012, as UBS reported that the first day of trading saw physical sales to India were twice what they usually are, according to Fred. Although this is a very short time frame, I believe the buying trend will continue in this gold-loving country.

In China, “just as in India, gold is seen as a store of wealth and a hedge against inflation,” says Fred. Demand has been growing, especially in the third quarter, when China’s gold purchases outpaced India. “Physical demand for gold from the Chinese has been voracious all year,” says Fred. As of the third quarter, China had already obtained 612 tons, eclipsing its total 2010 demand, according to the WGC.

Across the Chinese retail sector, gold, silver and jewelry demand was the strongest performing segment in 2011, says J.P.Morgan in its “Hands-On China Report.” Growth in this segment far outpaced clothing and footwear, household electrical appliances, and even food, beverage, tobacco and liquor, all of which experienced more modest growth.

J.P.Morgan says the bulk of the increase came from lower-tier cities “where income levels are rising the fastest and improvements in retail infrastructure have allowed for rapid store expansion.”

Increasing incomes coupled with government policies that support growth have been the main drivers for rising gold prices. Take a look at the chart below, which shows the strong correlation between incomes in China and India and the gold price. As residents in these countries acquire higher incomes, they have historically purchased more gold, driving gold prices higher.

We anticipated that the Year of the Dragon would spur an increase in the buying of traditional gifts of gold dragon pendants and coins. Gold buying did hit new records, says Mineweb, with sales of precious metals jumping nearly 50 percent from the same time last year, according to the Beijing Municipal Commission of Commerce.

This should serve as a warning to all of gold’s naysayers. Gold bullfighters beware—you now have to fight the gold bull while fending off a golden Chinese dragon.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Written by Frank Holmes

In the Bullring With Gold is an article from:

We are in the midst of a powerful rebound in our select uranium miners such as Uranerz (URZ).  The charts indicate an explosive 220% rebound since October lows.  For months we sent out reports that Uranerz will outperform as they are well funded and have already initiated construction on their Nichols Ranch In Situ Uranium Project, which should be producing uranium by the end of the year.  They also have agreements with Cameco and Exelon, two major nuclear players.  In fact Uranerz is leading the sector over the past three months regaining its 200 day moving average and rallying over 225% from October lows.

See the map of their enviable land position between Uranium One and Cameco by clicking here.

I wrote to my readers back in October, “In relative performance to the S&P Uranium stocks returned to 2009 levels, extremely oversold and demonstrating negative divergences for several months.  Keep your hands on the nuclear plow.  If one has not invested in this sector, this is a chance to buy wholesale.  The coming months will give geometric gains as safe, modern, clean and affordable nuclear reactors come online.  Stay steadfast to reap the coming rewards.”

Check out the recent interview with Dennis Higgs, Executive Chairman of Uranerz, discussing the uranium market and updating us on current developments in the Powder River Basin in Wyoming.  For Dennis Higgs bio as well as the other experienced managers and directors click here…

Gold Stock Trades will not regale you with the growing presence of nuclear facilities throughout the world despite the German and Japanese negative stance.  It is well known that reactors are going to come online in increasing numbers and that uranium will be in rising demand.  In fact, several reactors are being built right here in the United States as well as all over the world.

The U.S. Nuclear Regulatory Commission is scheduled to approve Southern Co.’s application for the first construction permit to build modern nuclear reactors in more than 30 years.  Southern is planning to build two new generational reactors and the NRC is considering a license to build additional newly designed reactors in South Carolina.     Nuclear power accounts for 20% of all electricity being produced in the United States and is expanding with the construction of new safer, efficient and cleaner nuclear reactors.  This is being done all over the world.

The once in a millennium earthquake and tsunami in Japan has triggered a knee jerk panic driven reaction from politicians especially in Germany and Japan.  However, the U.S. Nuclear Regulatory Committee released a study nearly a year after Fukushima stating “Public health consequences from severe accidents are very small…successful implementation of existing mitigation measures can prevent reactor core damage or delay or reduce offsite releases of radioactive material.”  The study, called the State-of-the-Art Reactor Consequence Analyses (SOARCA), looked at worst case scenario situations and its impact on health.  This means the U.S. is going full speed ahead on nuclear while Germany and Japan continue with skyrocketing electricity costs.

It is to be noted that four of the giant Japanese nuclear builders are aiming their sights to countries all over the world especially the emerging nations, which are constantly seeking inexpensive and clean electrical energy.  They are responding to this global need by sending teams of experts to sell the building of a new generation of reactors.

Japan wants to sell nuclear reactors abroad to boost their exports.  The companies that are participating are Hitachi and Mitsubishi Heavy Industries among others.  The Japanese claim that emerging nations can learn from the Japanese Nuclear Experience.    The Giants do have a vocal opposition at home who are criticizing this outreach by calling it hypocrisy and the setting up of double standards.

Japan is impaled on the horns of a nuclear quandary, weighing their thirst for exports against their own domestic naysayers.  Money talks.  The Japanese Nuclear Industry posted an annual profit of over $3 billion dollars which made a welcome addition to their balance of exports.

They have gone so far as to offer interested emerging nations not only the building know how, but they are offering them loans to assist them in this pursuit.  It’s almost an offer that these young nations will find hard to resist in their search for efficient and affordable, clean electricity.

Moreover, there are reports that Germany and Switzerland are fast coming to the awareness that the costs of locking up their nuclear plants will cost large amounts of capital.  Siemens published a report that it would cost Germany more than $2 trillion dollars to wean off nuclear by 2030 causing major deficits.  Imagine they are placing their trust in foreign providers.  It is going from wholesale to retail at great costs to their economies.  Capital will flow to countries that make sane, rational decisions with regard to nuclear.

Recently, Russia and the United States have taken a page from this Japanese imperative.  Formerly at loggerheads during The Cold War, they are now uniting cordially to ensure that nuclear fuel is available for the growing number of new generation of nuclear reactors.

We have remained steadfast in highlighting the importance on our select list of uranium miners right here in the United States.  This means jobs and new ancillary industries rising to accommodate the increasing uranium output.  We are speaking about new cranes, highways and even cities.  We are talking about a U.S. nuclear revival.

How does all this relate to our subscribers?  It is evident that nuclear power in not only here to stay but will proliferate as world demand keeps on growing.  Our select uranium stocks have been rebounded considerably after being left for dead only weeks ago.  Our subscribers are having their patience rewarded.

The German and the Japanese liberals will reconsider their knee jerk political reaction as their policies weaken their once proud credit rating and economic standing.

Disclosure: Long URZ and Featured on http://goldstocktrades.com

Nuclear Revival Spur Uranium Miners Higher, Uranerz (URZ) Leading Sector is an article from:

The time to buy “anything” is when the stock market puts in one of these intermediate degree bottoms. It’s way too late in the intermediate cycle, especially with the NASDAQ stretched 9% above its 50 day moving for anyone to be buying now. Now is the time for investors to be taking profits. And by taking profits I don’t mean selling short. I mean moving to cash.

The simple fact is that selling short is a fools game designed to take money away from retail investors. The only people that will ever make any consistent long-term gains by selling short are the very elite traders of the world, or big funds with massive research departments that can ferret out and find sick or failing companies.

What most traders who try to sell short fail to understand is that markets go down differently than they go up. This fact makes it very difficult to make, and more importantly keep, any profits garnered by selling short. 

First off, tops are often a long drawn out process. They tend to whipsaw short-sellers to death before finally rolling over. I would say we have seen a very good example of that over the last four weeks.

Then even if one does manage to catch the top the intraday moves are often so violent that they  knock one out of their positions. And finally if you mistime the bottom you will give back most if not all of your meager profits during the first couple of days of the new rally.

All in all, the best position for 99% of traders is to go to cash when a correction is due. As you can see by that first chart a correction is now due. That doesn’t mean that it will begin Monday morning or even this week. What it does mean is that it is now too dangerous to continue playing musical chairs with a market that is at great risk of a sharp corrective move.

The fact is that ever since the dollar put in its three year cycle low in May, trading conditions have changed. Trades had to become much shorter in duration and profits taken much quicker. 

Until the dollars major three year cycle tops that isn’t going to change. As you can see in the chart below we still have no confirmation of a major trend reversal yet. The dollar is still making higher highs and higher lows. It’s still holding well above a rising 200 day moving average and hasn’t even turned the 50 day moving average down yet.

Once the stock market begins moving down into its intermediate cycle low it will almost certainly force another rally in the dollar, possibly (probably) back to new 52 week highs.That should at a very minimum pressure gold to retest the December lows, and if the selling pressure from the stock market is intense enough we could see another marginal new low somewhere in the high 1400s to low $1500 level.

I should point out that gold still has not broken the pattern of lower lows and lower highs despite the powerful rally out of the December 29 bottom. Technically gold is still in a down trend. That down trend may be reconfirmed when the stock market drops down into its intermediate degree bottom.

I know we all want gold to immediately return to the days of strong trending moves, long trade durations, and easy money. It’s only natural for investors to long for the good old days. It’s what causes investors to chase (in vain) the last bull market. Think of all the investors that are still chasing the tech bubble of 2000, or the millions of investors still trying to pick the bottom of the housing market, or more recently energy investors struggling to figure out why solar and oil service stocks have underperformed so badly for the last three years.
 
These are bubbles that have already had their day. They are never going to see those glory days again. Living in the past never made anyone rich. The people that get rich are the ones that figure out early where the next bull market is going to be.

That being said, gold is most certainly not in a bubble yet. But the last massive C-wave obviously topped in September. That was the largest and longest C-wave of this entire secular bull market. Once something like that tops it takes months if not a year or more to consolidate those gains before the next leg up can begin.

Analysts that are predicting $2000 plus gold for this year are just kidding themselves. Gold is almost certainly going to be locked in a very choppy, extended trading range till at least the fall and probably into next spring before the next C-wave can breakout to new highs.

As distasteful as it is, investors need to accept the fact that it’s going to be very hard to make money in the precious metals sector this year, and the only way to do so will continue to be with short-term trading strategies until we have confirmation that the dollars three year cycle has topped.

At the moment precious metal investors have the guillotine of the stock market hanging over them just like everyone else. Historically the selling pressure from an intermediate degree decline in the stock market will force an average decline of about 19% from peak to trough in mining stocks. Right now the mining sector is in a weakened state with the HUI holding below a declining 200 day moving average. That’s not exactly the best position to weather the intense selling pressure generated by an intermediate degree decline in the stock market.

My advice for precious metals investors is the same as it is for everyone else. Go to cash and be prepared to buy when the stock market puts in an intermediate bottom in late February to mid March.

Written by Gold Scents

DANGEROUS TIMES AHEAD is an article from:

The region has long carried an emotional attachment to gold. In fact, gold was one of China’s earliest forms of currency way back in 1091 B.C. With rising average incomes and wealth levels leading a new of age of prosperity in China, citizens are snatching up gold at an unbelievable rate. According to the Beijing Municipal Commission of Commerce, sales of precious metals jumped nearly 50 percent from the same time last year during China’s week-long New Year’s holiday in January.

This type of momentum is a catalyst for gold prices to remain strong in 2012.

This is one aspect of the American Dream Trade I discuss in my letter for the Report. There’s also an informative Q&A with China analyst Xian Liang who talks about the dramatic transformation his hometown of Shanghai has undergone over the past 20 years.

Check out the Shareholder Report page to view the full contents of the report. If you would like to request your own copy, send your name and address to editor@usfunds.com.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Written by Frank Holmes

The Growing Appeal of Gold is an article from: