Monday, December 31, 2012

SUn Tzu Forex


Sun Tzu"s Art of War Provides The Solution To Your Trading Blues

Sun Tzu's Art of War provides a key solution to successful battle, which can be extrapolated to Forex trading.

Sun Tzu's Art of War called it: "Know Your Enemy"

And your enemy in Forex trading is merely the Forex market itself and you- the person itself.

To win in the Forex market, you must know the Forex market itself - in other words, you must get to understand the currency-pairs that you are trading on. Spend time to study their price movements.

Know what trading patterns and setups occur time and again in those currency-pairs. Be familiar with the risk-reward ratios of each specific trade pattern for those currency-pairs you are trading. Define and apply a specific trading strategy for those currency-pairs you trade. Know when to enter and exit the market and when to stay away. The best way to ensure you are doing it correctly is to get another experienced and successful trader to mentor or to show you the ropes. Budget to learn before you trade.

As to the other part of the battle, you need to see the part of you, yourself who is the enemy. Forex trading involves decision making where your risk tolerance is put to the test, where emotions of greed and fear will play a daily tug of war within your heart. The solution to win this emotional battle is to trade with discipline. Adopting a winning strategy, a winning plan complete with risk management and ensuring you do not deviate from that plan is a necessity for you to win. 

Sunday, December 30, 2012

Artikel yang ditulis oleh Mark Thomas, the Silver Price Advisor yang bertajuk Twenty Reasons to Buy Silver for the Long-Term pada hari khamis 27 Disember 2012 di Wealth Wire perlu diambil perhatian yang serius oleh pedagang silver jika ingin berjaya sebagai pedagang profesional.

  

I believe that silver could go to $60 per ounce from today’s price of just $30 by the end of 2014. That would be double from today’s current prices in just a little over two years! I also believe silver will be the best single investment of this decade. The following article is focused on why I think that you should seriously consider having a significant percentage of your investment portfolio in silver.

Many gold investors deride silver as the "poor man's gold" because of its low relative price to gold. They also don't like the fact that it because it is used primarily as an industrial metal it can be negatively affected by a cyclical downturn in the economy. This is opposite of gold which is viewed almost entirely as a precious metal. Many years ago, the silver market was so oversupplied because there were huge artificial inventories of silver. This was because the US took currency (coins) out of circulation due to its physical silver content. Because of this artificial situation, huge surpluses hung over the market until these excess inventories were depleted. This led to silver prices crashing as low as $2 and then traded around $5 for years. Because silver had so decoupled from the price of gold during this period, it began to be thought of as just another industrial metal and not a precious metal.
There are still skeptics who think of silver as just another industrial metal. 

However after a 600% rise in price from $5 to $30 since 2003, it has begun again to be viewed as a precious metal. I think that silver has only completed about fifty percent of that process. As this transformation continues there will be additional significant moves higher in price. That will attract more investors to silver again until it once again retains its true status as a precious metal.

1) The amount of silver consumed annually and bought for investment exceeds currently exceeds total annual mining output and has for years. That gap has been filled by sellers willing to sell from existing inventories and as prices rise. As time passes this will naturally push prices significantly higher until this fundamental imbalance reaches a true equilibrium price where supply is closer to demand.

2) Both industrial and investment demand for silver is growing in excess of the annual increase in mining production growth. The available inventory is low and will get even tighter over time. These two factors will lead to a continued tighter supply-demand situation going forward. 

3) The lower price of silver at $32 appeals more broadly to small investors relative to the more expensive gold at $1705, especially if gold prices continue to rise.

4) Most silver is not found in mining sites in any significant concentrated form. It is usually chemically bound to other metals; much of it is actually the byproduct of mining for lead, copper, etc. In the last few decades this made it less attractive from a profitability standpoint to invest in pure silver mine. Now prices have finally recovered enough to make new projects feasible again. So there is new investment in the sector but it is a lengthy multi-year process to bring on significant new production. 

5) The last time silver was found in huge concentrations or veins that dramatically affected the amount available and therefore significantly lowered prices was in the Comstock Lode in Nevada in the late 1800's. The Comstock Lode produced tons of ore that was very pure with concentrations of 25-50% silver. Silver mines today have much lower concentrations, usually always less than two ounces per ton of refined ore.

6) Silver is the most conductive metal on earth. Gold is also conductive but is prohibitively expensive due to its much higher price for most industrial uses compared to silver.

7) Silver is an industrial metal with over 10,000 commercial applications. Because it is one of the best electrical and thermal conductors, that makes it ideal for electrical uses such as switches, multi-layer ceramic capacitors, conductive adhesives, and contacts. It is used in some brazing and soldering as well. Silver is also used in solar cells, heated automobile wind shields, DVD's and some mirrors.

8) Silver is an essential element in the electronic gadgets that are a growing part of our digital age. It is in every cell phone, smart phone, tablet, computer keyboard, solar cells and every radio frequency if ID device (RFID). This makes it an essential element going forward as the world becomes more addicted to gadgets. The growth and rising living standards of people in the emerging economies will drive long-term growth of new customers that will demand more and more electronic gadgets.

9) Silver's industrial demand should increase 60% to 666 million ounces per year by 2016 from 487 million ounces in 2010. Current annual mine production is only around 700 million ounces per year growing a few percent annually.

10) Of a total of fifty billion ounces of silver that have been mined in history, only two ounces (estimate) or 5% remain in above ground inventories available to be bought and sold. This is due to silver being used up in industrial applications in very small quantities, which makes it unprofitable to recycle at today's prices. A lot of silver is used in minute quantities in industrial products which are used up and discarded without being recycled.

11) This is unlike gold where five billion ounces have been mined and two and half billion ounces (estimate) are still available in all inventory. Since gold is hardly ever discarded because of its very high price, used mainly in jewelry or for investment purposes, the total inventory is so much larger than silver.

12) The supply demand equilibrium in silver is extremely tight. There is now less than one year of inventory of silver, compared to over eleven years of inventory in the 1970’s.

13) Exchange Traded Funds (mainly SLV, SGOL, PSLV, and CEF) have opened precious metals investing in silver to millions of investors around the globe. When investor make net new purchases, the ETF purchases physical silver and removes it from the available market, which increases the scarcity of available supply. This is the first time many investors worldwide are not required to actually buy physical silver bullion and coins and store it themselves. Now they have an investment vehicle that offers liquidity and ease of trading to get exposure to precious metals.

14) Silver also has many medicinal applications. Roman soldiers long ago noticed that if water is kept in silver cups, it wouldn’t become stagnant. Today silver in "colloidal" form is used as a broad spectrum antibiotic. It can be used in bandages to treat burn victim's wounds and also in colloidal form actually swallowed to target microorganisms in one's gut. It is also used in water purification systems.

15) The US Dollar has lost 31% of its purchasing power just since 2000. The dollar has lost a staggering 82% of its value since the US was taken off the gold standard in 1971. Since the Federal Reserve was created in 1913, the US dollar has lost 95.6% of its purchasing power. When you compare the historical appreciation and more importantly, the retention of real purchasing power of precious metals versus the dollar in those same time frames, those facts alone should convince you that significant exposure in precious metals is necessary to protect your wealth. The primary and overarching reason you should have a significant percentage of your investment assets in precious metals is simple: to protect the real purchasing power of your accumulated wealth! In this age of government's abusing their privilege of excessively printing currency, on a magnitude and scale not seen for decades, only gold and silver can protect and actually grow your wealth.

16) Gold and silver are such unique elements with so many uncommon properties. Therefore the chance of a gold or silver substitute being developed is almost impossible. It hasn't happened in thousands of years and it probably never will. That is what makes them exclusive; they can't be printed, manufactured or copied. They can only be mined, purchased from a willing seller of the world's existing inventory and from recycling.

17) Unlike an account at a bank, a dollar bill or a bond, these are all both an asset and liability to counterparty. This includes every other financial instrument and derivative man has created in history. Precious metals are the only asset class with no counterparty risk if you have physical or very secure possession. They will always retain some value and can’t go to zero like any other investment.

18) The total amount of silver available to trade in the physical silver market is only about $70 billion versus the total gold market which now exceeds $4.3 trillion. As you can see from these numbers, the total market size of the silver market is only 1.6% of the size of the entire gold market. This lack of liquidity and use of extreme leverage in its respective futures market produces wild volatility in price fluctuations of silver.

19) The total gold market is sixty one times the size of the silver market yet. As interest in silver increases this sets up a situation where prices could soar higher.

20) Since World War II, the US government has sold over five billion ounces of silver and currently has no reported stores. Now that vast stockpiles are gone, the supply demand equation has changed dramatically.

Wednesday, December 12, 2012

The Silver Bomb




Published on 11 Dec 2012

Doom is priced into the silver market. Less doom = less demand

"All price movements have one thing in common: They are a reflection of the trend in the hopes, fears, knowledge, optimism and greed of market participants."

"The sum of these emotions is expressed in the price level, which is... never what they are worth, but what people think they are worth."

"The... market consists of everyone who is in the market at a given moment, plus everyone who is not in the market but might be if conditions were right"

-Technical Analysis Explained, Matin J. Pring

Friday, December 7, 2012

Beli Silver

Satu artikel yang ditulis oleh mengapa pedagang perlu membeli dan menyimpan silver sebagai aset utama. Baca dan ambil tindakan.

 The Silver Lady's 2,477% Gain


like +26 (-2) dislike
 
By
Thursday, December 6th, 2012

Gold has been a great investment for the last twelve years. It has gone from $300 an ounce to $1,900 an ounce with few stops.
At the moment, the price of gold is a bit off its all-time highs and sits at $1,725.
It's not as cheap as it was — but it is far from a mania...
I've yet to hear a taxi driver or waitress tell me to buy gold. The guys running the stores at the strip malls are buyers, not sellers. And it never leads the news.

Greek Fire

Furthermore, it's much easier to envision gold going up versus down as the global currency warlords are fighting each other for the right to surrender...
It's not hard to imagine a scenario where a Greece- or Argentina-style default in France or the U.S. would spark a speculative frenzy and a blow-off high around $10,000 an ounce.
In fact, this is quite easy to picture. What's more difficult to figure out is how gold will drop back below $1,000.
I like gold, and I'll continue to own it and recommend you buy on the dips.
The most immediate catalyst is the new Basel III rules, which will double the value banks place on gold.
(This could be why Goldman Sachs downgraded it today. They need to stock up.)

One More Silver Dollar

That said, today we are talking about silver.
My dear, sweet grandmother was born in 1898 and died in 2000, thus acquiring the unique honor of living in three centuries.
She was born before the Fed was created in 1913; raised a young family during the Great Depression; and hoarded her bridge winnings in the credenza. She had a big drawer full of pre-1963 silver half dollars, quarters, and other loose change.
I remember in the late 1970s, the old biddy would call up silver buyers and have them appraised...
They would come scurrying over to her apartment, hoping for a quick score from a little retired lady. But she never sold. She just liked talking to people sometimes. They would get tea and cookies.
I don't know what happened to all those silver coins, but I do know they have gone up in value over the last fifty years.
A 1948-1963 silver half dollar is 90% silver, 10% copper, and weighs 12.5 grams. Using $32.80 as our silver price and $3.63 for copper, this will give you a melt price of $11.87.
That's a 2,477% return over 49 years. Not too shabby.

Silver as Industrial Metal

Unlike gold, which has few industrial uses, silver — in addition to being used in coinage and as a storehouse of wealth — is used in all sorts of products.
It is also cheap.
Take a look at the gold/silver ratio:
gold silver ratio
Though the ratio isn't at a bottom, like we saw in 2011 when silver popped to $48.44, we are still below the average and well off the highs.
Today silver is trading at $32.22.
At silver’s high point, the ratio dropped to around 30:1. During the metal’s worst days, when it traded for $3.73 in 1992, the ratio swelled to 90:1. For silver to revisit its highs versus the price of gold, silver would need to almost double in price while gold remained the same.


There are two arguments for why silver will go up.
1.The first is debasement of currencies, which has been covered in this space many times.

2.The second is industrial supply and demand.

In the year 2000, global industrial demand stood at 383.3 moz. This reflected rising demand from a growing range of consumer products, most notable photography and electronics.There was a post dot-com bubble drop, but silver demand quickly bounced back and went on a seven-year run to a record amount of 492.7 moz in 2008. In 2009 demand took a hit, but bounced back in 2010 with 499.6 moz.

Many people thought digital photos would end demand for silver after that sector went from using 33% of industrial silver in 2000 to 13% of silver in 2011. The supply has been taken up by TVs, computers, cellphones, and solar panels. Some 40 moz a year are now used in thick solar cells.The Silver Institute has recently put out numbers that say industrial demand for silver fell 6% in 2012, but will bounce back in 2013.

They expect it to hit an all-time high of 511 moz in 2014 based on demand growth from India and China, with photovoltaic cells being the fastest growth unit.The upshot of this is the price of silver trades below its average with a number of upside catalysts — including industrial demand and currency debasement.
Next week, I'll tell you about the looming supply disruptions.
All the best,
Christian DeHaemer Signature
Christian DeHaemer

Tuesday, December 4, 2012

What Can Happen with Gold If the Dollar Collapses?



-- Posted Tuesday, 4 December 2012 | Share this article | Source: GoldSeek.com

Today’s essay is the first one in our two-part commentary on U.S. debt and the dollar collapse.

On numerous occasions we have gone back in our commentaries to the year 1971 and U.S. President Richard Nixon’s decision to cut off the ties between the greenback and gold. Today, we revisit the topic once more and check what kind of implications it has for the price of the yellow metal.

Prior to 1971 the most prominent world currencies had been regulated by the Bretton Woods system. Under this agreement, the U.S. agreed to link the dollar to gold. This meant that any amount of dollars handed over by a foreign government or central bank would be exchanged for gold at $35 per ounce. Such an arrangement had a particularly important consequence for money creation. Namely, the U.S. government shouldn’t issue more paper money than it had physical gold to back this money up. In practice, it was rather improbable that all the dollars would have to be exchanged for gold at once, so the U.S. government in fact issued more money than it could have paid for with gold, but the main restriction was in place: debt numbers couldn’t be inflated to unsustainable levels.

In 1944 when the Bretton Woods system was introduced, the relation of U.S. debt to the official Treasury gold reserves stood at $319.90 per ounce of gold. This meant that there was $319.90 of borrowed money for every ounce of gold the U.S. had. With the price of gold at $35, a quick calculation shows that the U.S. gold reserves could have paid for about 10.9% of its debt. At first, it might seem that there was a lot of debt compared to gold assets. On the other hand, however, such a ratio was similar to reserves required from commercial banks by the regulator. In a way, the U.S. operated like a bank (with a lot of differences, of course).

By 1970, partly due to the Vietnam War, the U.S. began running consistent deficits. The government printed more dollars to meet its obligations and the amount of debt per ounce of gold surged to $1,172.56. The coverage of debt in gold went down to 3.1%. The ability of the U.S. to keep up to the promise to exchange dollars for gold was put into question. Nixon, fearing a situation in which foreign central banks would make a collective bank run on Fort Knox, decided to cease to exchange the dollar for gold and directly break the Bretton Woods agreement.

From that moment on, the dollar has been a fiat currency, that is a currency not backed by a physical asset, just by a promise of the government to accept payments (taxes) in it. But, as we’ve just seen, promises can be broken and right now the ability of the U.S. to pay its debts off in the future is also being put into question. To see why, take a look at the chart below.


Since 1970 U.S. debt has gone up from $370.9 bln to $16,159.5 bln, which is a more than 41-fold increase (!). Since 2000 gold has appreciated along with the ever sharper increase in debt. A similar chart was discussed in our commentary on gold as insurance.

Our next chart shows the rates of change (ROC) of both the U.S. debt and the average annual price of gold between 1920 and 2012.


The annual ROC of U.S. debt was in a general downtrend in the 1983-2000 period which was accompanied by poor performance of gold. Since 2000, the ROC of U.S. debt has been increasing again, which means that debt has been growing increasingly rapidly. This coincided with gold’s extraordinary performance during the last 10 years.

The U.S. Federal Reserve, led by Ben Bernanke, initiated three substantial rounds of what it calls quantitative easing (QE). In short, QE is a process in which the Fed buys government bonds and other assets from secondary markets with newly created dollars. Its (official) purpose is not to finance government deficits but rather to bring the U.S. economy back on the growth trajectory. Nonetheless, the effects of QE can be compared to those of printing enormous amounts of money. Just to give you an idea of how much debt the consecutive rounds of QE have so far created (approximate amounts):

  • QE1 (Nov 2008 – Mar 2010): $1.65 trillion
  • QE2 (Nov 2010 – Jun 2011): $600 billion
  • QE3 (Sep 2012 – ?): $40 billion per month.
As a matter of fact, Fed’s quest to provide the economy with more incentives has not stopped. The direct effect of QE on debt is reflected on the chart below.


In the period between January 2012 and November 2012 U.S. debt grew by 7.2%. There’s more to it: QE3 is an open-ended operation. This means that there is no limit on the amount of money the Fed can create and inflate the debt with within QE3. The purchases in the amount of $40 billion per month will continue as long as the Fed deems necessary.

The points mentioned above add up to a picture which is not at all rosy for the U.S. But it’s not apocalyptic either. Particularly for precious metals investors. Let us explain why.

It belongs to common sense that you can’t borrow money forever. Economics has a lot of intricacies and can be quite complicated at times but the basic rules are very simple. You borrow, you have to pay back. So if the government borrows too much and can’t pay it back, it will have to go bankrupt. The more debt it has, the worse its reputation is. People are less willing to put their money into treasury bills of a government with excessive debt. If the economy is shaky and the government is printing money, it damages its reputation but also makes the currency worth less and less. Hyperinflation is not a default nor bankruptcy in technical terms, but it is in practical terms. For the USD bond holders it will make little difference if they are not paid or paid something that is worthless.

In such an environment investors, motivated psychologically, turn to gold and silver. As Warren Buffet correctly pointed out:

“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

But there’s one side of precious metals that is not covered by that quote. Gold and silver may be just lumps of metal but what makes them extremely interesting is the psychological association people have with them. Gold and silver have been used as currencies throughout the centuries. And people, for whatever reason, perceive them as valuable, particularly in times of economic turbulence. This alone stipulates that gold and silver prices may rise along with the worsening of the economic situation. And in case of the unlikely collapse of paper currencies, gold and silver could quite naturally come in as the base of a new monetary system.

The possibility we would like to highlight now is the default of the U.S. on its obligations and the demise of the dollar. In this scenario, a new currency system based on the gold standard is introduced. The financial collapse is usually perceived as Armageddon but doesn’t necessarily have to be one. Just imagine, even in case of the U.S. government defaulting on its obligations, the assets that the country has would remain in place. The buildings, cars and infrastructure would still be there, they wouldn’t melt down in the possible financial crisis.

A lot of property would change hands and there definitely would be turmoil, but it wouldn’t need to amount to a civil war. Take a look at Latvia, a country where the GDP between 2007 and 2009 shrank by 24%, where unemployment shot up to 30% in 2010. Where the government laid off 30% of the civil servants and cut payrolls by 40%. Latvia didn’t disintegrate.

So what implications for gold would a collapse of the U.S. dollar have? The next chart will aid us to analyze such an occurrence.


This chart presents the already mentioned relation of U.S. debt to Treasury gold reserves – the amount of debt per one ounce of gold – up to 2012. The red line represents U.S. Treasury gold reserves in metric tonnes, while the yellow line denotes the amount of U.S. debt in dollars per ounce of gold. The debt per ounce has visibly increased since 1971, accelerating around 2000 and even more around 2008. In 2012, there were $61,796.11 of debt per one ounce of gold owned by the U.S. government.

Now, if a new gold standard is introduced and the agreement works like the Bretton Woods system, the dollar (or whatever other currency) would be tied to gold. As noted earlier in this essay, at the introduction of the Bretton Woods agreement in 1944 the debt coverage for the U.S. stood at 10.9% (or $319.90 of debt per one troy ounce of gold). If the new system were based on similar assumptions with debt coverage at 10%, this would imply a fixed price of $6,179.61 per ounce of gold ($6,179.61 per ounce of gold divided by $61,796.11 of debt per one ounce of gold gives us coverage of 10%).

But is the dollar collapse all that likely? Or let us restate the question: if the dollar doesn’t collapse, does it still make sense to be invested in gold and silver? Bear with us until next week when we publish the second part of this commentary. Until then you can gain some more insight into why holding on to precious metals might keep you on the safe side by reading our essays on gold and silver as insurance and on gold and silver portfolio structure.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA
Founder, Editor-in-chief