Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

October 20, 2011 /> David A. Banister- www.MarketTrendForecast.com

Back on October 3rd I wrote a public article forecasting a major market bottom at around 1088 on the SP 500 index.  I surmised we were about to complete a 5 wave move to the downside that commenced with the Bin Laden highs of 1370 in early May of this year.  The following day we bottomed at 1074 intra-day and closed over my 1088 pivot and continued higher as we all know.  That brings us to the recent highs of 1233 intra-day this week, a strong 159 point rally off the 1074 lows in just a few weeks.

Markets I contend move based on human behavioral patterns, mostly because the crowd reacts to good or bad news in different ways depending on the collective psychology of the masses.  There are times when seemingly bad news is ignored and the markets keep going higher, and there are times when very good news is also ignored and the markets go lower. This is why I largely ignore the day to day economic headlines and talking heads on CNBC, as they are not much help in forecasting markets at all.

Using my methods, I was able to forecast the top in Gold from 1862-1907 while everyone was screaming to buy.  I was able to forecast the April 2010 top in the SP 500 well in advance, the bottom last summer, and recent pivot tops at 1231 and 1220 amongst others.  All of this is done using crowd behavioral theory and a bit of my own recipes.  That brings us forward to this recent rally from 1074 to 1233, which as it turns out is not all that random.

The rally to 1233 will have taken place within a 13 Fibonacci trading day window which ends today.  In addition, the rally is leading into the end of Options Expiration week which tends to mark pivot highs and pivot lows nearly every single month.  Also, at 1233 we have a 61% Fibonacci retracement level of the 1010 lows of July 2010 and the 1370 highs of May 2011.  1233 was my “Bear line in the sand” I gave out a few months ago to my subscribers as a likely bull back breaker.  In essence, the market is having trouble breaking the glass ceiling at 1233 for a reason; it’s a psychological barrier for investors now.

Near term, I expect the market to have another sharp correction to work off the near 160 point SP 500 rally that has taken hold in just over two weeks and again on 13 Fibonacci trading days as of today.  In addition to that, we should follow copper as it tends to be an extremely good indicator for the SP 500 index long and short term. /> Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

In any event, we are due for what I call a “B wave” correction of sentiment in the SP 500 and market indices, which should take the SP 500 to the 1149-1167 ranges minimally, and perhaps set up another entry for a C wave to the upside.  Caution is warranted near term is my point.  If you’d like to receive these types of regular updates during the week covering Gold, Silver, and SP 500 and more, check us out for a coupon or free weekly update at www.MarketTrendForecast.com

In May of 2010, immediately following the flash crash many investors started to become bearish (nervous) regarding their position in gold and equities. Once the general public became aware that the stock market could fall 10% in a matter of minutes, investors became very cautious. Suddenly protecting their capital and current positions was at the forefront of their investment process.

A couple days later the market recovered most of its value, but it became clear that investors were going to sell their long positions if the market showed signs of weakness. It was this fear which pulled the market back down to the May lows and beyond over the next couple months which caused investors to panic and sell the majority of their positions. It is this strong wave of panic selling that triggers gold and stock prices to form intermediate bottoms. Emotional retail traders always seem to buy near the top and sell at the bottom which leads to further pain.

Now, fast forward to today…

This past August we saw another selloff similar to the “Flash Crash” in May of 2010. (I warned followers that gold was on the edge of topping and that stocks would take some time for form a base and bottom – Click Here To Read) Over the past couple months gold, silver, and stocks have been trying to bottom but have yet to do so. /> Just a couple weeks ago we saw gold, silver, and equities make new multi-month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).

Just a couple weeks ago we saw gold, silver, and equities make new multi-month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).

This strong bounce or rally which ever you would like to call it may be the beginning stages of a major bull leg higher which could last several months. Before that could happen, I am anticipating a market pullback which is highlighted with red arrows on the chart below.

Chart of SP500, Gold and Dollar Index Looking Back 18 Months

Reasons for gold and stocks to pullback:

• Stocks are overbought and generally retracements of 50% or 61% are common following large rallies.

• The dollar index looks ready to bounce which typically means lower gold and stock prices.

• Gold continues to hold a bearish chart pattern pointing to lower prices still.

Weekly Trend Trading Ideas

A few weeks ago I warned my followers that stocks and gold are forming a bottom and that we should be on the lookout for further confirmation signs. I also mentioned that I was not trying to pick a bottom, rather that I was looking to go long once the odds were more in my favor.

This is a potentially very large opportunity unfolding and there will be several different ways to play this. However, right now I continue to wait for more confirming indicators and for more time to pass before getting subscribers and my own money involved.

From August until now (October 17) the SP500 is down -6.3% and gold is down -8.1%. Subscribers of my newsletter have pocketed over 35% in total gains using my simple low risk ETF trading alerts.

I can email you my bi-weekly reports and videos by joining my free newsletter here: www.GoldAndOilGuy.com

Chris Vermeulen

Obama still doesn’t get it – Government can’t create economic growth, only prevent it.

Can I make a small request? Before we go throwing more good money (American Jobs Act) after bad (American Recovery and Reinvestment Act of 2009) can we review some basic economics?

Let’s start with what economic growth is and what it isn’t. Contrary to what the evening news would have you believe, GDP is not a measure of economic growth, as GDP is positively impacted by reckless government deficit spending. Politicians like this fact because all they have to do to claim success – in the short term – is to waste more money than the last guy. To date, no president has been more successful in this regard than Obama.

So what is economic growth really? Very simply, economic growth occurs when the overall productivity of society increases. In other words, the average individual’s labor produces more goods and services than it did previously. As more “stuff” is produced by the same amount of people, that “stuff” becomes more affordable. On average, the standard of living increases. That it positive economic growth.

The key to maximizing this productive output is to correctly align capital with the needs of the market. The good news is that this is exactly what the free market does all by itself. Profit is the critical signal that directs resources to where they are needed the most. Excessive profits indicate that demand has greatly outstripped supply. And it is these excessive profits that attract competing capital to provide additional supply and lower prices. Hence the old axiom, high prices are the best cure for high prices.

Another wonderful attribute of a free market is that those who are most skilled at increasing productivity are rewarded with the most new capital to deploy. Those who prove to be incompetent in such endeavors are swiftly punished through insolvency, as no new capital comes their way.

I consider the electronics and computer industries to be the closest thing to a free market that exists today. At least in part because government bureaucrats are unable to keep up with its complexity and rate of change.

Take a look at those who run Apple Computer. They have been extremely successful at aligning their capital investments to produce what the market wants. As a result, the market rewards their competence with additional capital to deploy. Each year they use these new resources to provide better products at lower prices. Each year they create sustainable, long term jobs. The economy and society benefit from their success.

Now let’s compare this to how the government creates jobs: Step 1) borrow money. Step 2) create make work projects. Step 3) pay people to complete said projects.

There’s really only one thing that you need to understand to shatter the whole myth of government induced economic prosperity: Governments have no wealth of their own. Any money the government has, must either be collected through taxes, borrowed, or printed. But regardless of the exact mechanism, all wealth possessed by the government is capital that is deprived from the private sector.

Had this capital been allowed to remain in private hands, it would have eventually made it to those who have the demonstrated skill at creating real economic growth (increased productivity). This leads us to a fundamental understanding; the mere act of creating jobs has no fundamental link to economic growth.

It is a trivial matter for government to provide 100% employment. This is exactly what the communist Soviet Union did. However, it suffered from virtually no real economic growth. Their standard of living was horrific compared to capitalistic countries.

And so we find ourselves on the path to a reduced standard of living, as each year, more and more private capital is miss-allocated to feed such political boondoggles as the American Jobs Act. If Obama had only a modicum of economic knowledge, he would understand that the greatest thing the government could do for the economy would be to slash its spending and simply get out of the way.

Richard (Rick) Mills /> Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The report “Critical Raw Materials for the EU” listed 14 raw materials which they deemed critical to the European Union (EU): antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

• Possibility (or not) of substitution
• Irreplaceable functionality
• Potential supply risks

Demand is increasing for critical metals due to:

• Economic growth of developing countries
• Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

• Massive population booms
• Infrastructure build out and urbanization plans
• Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

• Political instability of supplier countries
• The manipulation of supplies
• The competition over supplies
• Attacks on supply infrastructure
• Accidents and natural disasters
• Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

• Stopping or slowing the export of natural resources
• Shutting down traditional supply markets
• Buying companies for their deposits
• Project finance tied to off take agreements

Many countries classify cobalt as a critical or a strategic metal.

The US is the world’s largest consumer of cobalt and the US also considers cobalt a strategic metal. The US has no domestic production – the United States is 100% dependent on imports for its supply of primary cobalt – currently about 15% of U.S. cobalt consumption is from recycled scrap, resulting in a net import reliance of 85%.

Although cobalt is one of the 30 most abundant elements within the earth’s crust it’s low concentration (.002%) means it’s usually produced as a by-product – cobalt is mainly obtained as a by-product of copper and nickel mining activities.

Today 40% of the cobalt consumed in the world originated as a by-product from copper production in the West African country of the Democratic Republic of Congo (DRC) – cobalt production in most other countries is a by-product of nickel mining.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of  known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

At 19.7 percent of global supply Zambia is the world’s second largest producer of copper-cobalt. According to a recently released report by the Zambian Central Bank cobalt production rose to 2,236 tons in the first quarter of 2011 from 1,989 tons last year, exports increased to 2,279 from 1,977.

China is extremely short of cobalt concentrates and needs to import cobalt concentrates in large amounts every year. The leading global producers of refined cobalt are China (39%), Finland (15%) and Canada (8%). China is a leading supplier of cobalt imports to the United States.

The cobalt market is small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories.

Uses

Cobalt is a strategic and critical metal used in many diverse industrial and military applications.

• Super alloys
• Renewable Energy Re-usable energy storage systems
• Wear resistant alloys
• Magnets
• Binder Material
• Thermal spray coatings
• Orthopedics
• Life Science
• Catalyst in de-sulfurizing crude oil and as a catalyst in hydrogenation, oxidation, reduction, and synthesis of hydrocarbons.
• Gas to liquid technology (GLT)
• Other Uses – Drying agents in paints, de-colorizers, dyes, pigments, and oxidizers. Promotes adherence of enamel to steel, and steel to rubber in steel belted radial tires

Conclusion

China seemingly has most of the DRC’s production of cobalt locked up, that’s up to 40% of global mined cobalt.

Cobalt is classified as a strategic/critical metal.

With the recent strong support for electric vehicles the use of cobalt in this sector alone has led to a formidable demand for the element and the US cannot continue to depend on its cobalt being supplied mostly from China.

There is no doubt in this author’s mind that cobalt’s profile will continue growing in the coming months and years.

Is cobalt on your radar screen?

If not maybe it should be.

Richard (Rick) Mills /> rick@aheadoftheherd.com /> www.aheadoftheherd.com

If you’re interested in learning more about the junior resource, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership, and our AOTH newsletter, are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

For site advertising rates contact: rick@aheadoftheherd.com

Richard Mills does not own shares of any companies mentioned in this report.

Richard (Rick) Mills /> Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

The first ever GAO (Government Accountability Office) audit of the US Federal Reserve was recently carried out due to the Ron Paul/Alan Grayson Amendment to the Dodd-Frank bill passed in 2010. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, while leading the charge for an audit in the Senate, watered down the original language of house bill (HR1207) so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and others, opposed the audit.

What the audit revealed was incredible: between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments by giving them US$16,000,000,000,000.00 – that’s 16 TRILLION dollars.

The GDP of the United States is $14.12 trillion, the entire national debt of the United States government spanning its 200 plus year history is $14.5 trillion. The budget that is being debated in Congress and the Senate is $3.5 trillion.

In the past debt ceiling votes have passed the House and the Senate without question by the majority party (remember there’s an election next year so there’s a need for political grandstanding). When Republicans controlled the chambers they passed debt ceiling hikes with the Democrats in opposition. When the Democrats are in power they up the debt ceiling while the Republican oppose it.

Obama opposed raising the debt ceiling when George W. Bush was President. The debt ceiling is simply a limit of how much a government can borrow and owe regarding public debt. By increasing the debt ceiling, a President would be able to avoid spending cuts.

A default would only occur if the US did not make payments on its debt so not raising the debt ceiling will not result in default – a default can only occur if interest payments were not made.

As the audit of the Federal Reserve has just shown whether the debt ceiling hike passes or not is a moot point. The unelected Federal Reserve will, without Congressional authority, continue to create more money.

The majority of US debt is owned by the Federal Reserve.

The Dow on gold’s terms is telling everybody something important is happening:

In 2000 gold made its $260 per ounce low, in January 2000 the Dow was 10,900

10,900 / $260 per ounce = 41.9 ounces to buy the Dow

Today at 12,592  DJII and $1,600 gold it’s 7.87 oz to buy the Dow.

Investors are starting to realize that gold and silver are a storehouse of value and a safe haven in times of turmoil. Gold and silvers prices have risen because of the abuse and mismanagement of our monetary and currency systems – throughout history, gold has always shone the brightest when trust breaks down, confidence falls and fear climbs.

The Dow/Gold ratio has twice before gone through corrections resulting in a transfer of wealth from one asset class to another. 

 In 1928 the ratio peaked at 14.5 and then dropped to 2.9 as the stock market crashed and the U.S. entered a deflationary depression.  In 1965 the Dow/Gold ratio peaked at 27.6, then started a long correction to 1.57 in 1980 as Volker aggressively raised interest rates and stopped inflation. 

As you can see on the above chart we began a third correction in 1999 when the Dow/gold ratio peaked at 41. 

It presently would be very hard to mount an argument against gold being clearly the winning major investment of the last decade.

 

Latest demand statistics from the World Gold Council:

Gold Demand and Supply – First quarter 2011

• Global gold demand in the first quarter of 2011 totalled 981.3 tonnes, up 11% year-on-year from 881.0 tonnes in the first quarter of 2010.
• The quarterly average gold price hit a new record of US$1,386.27/oz (as per the London PM Fix), its eighth consecutive year-on-year increase.
• During the first quarter of the year, investment demand grew by 26% to 310.5 tonnes from 245.6 tonnes in the first quarter of 2010.
• ETFs and similar products witnessed net outflows of 56 tonnes.
• India and China, the two largest markets for gold jewellery, together accounted for 349.1 tonnes of gold jewellery demand or 63% of the total, a value of US$16bn. China’s jewellery demand reached a new quarterly record of 142.9 tonnes up 21% from 118.2 tonnes in the first quarter of 2010.
• In Q1 2011, gold supply declined by 4% year-on-year to 872.2 tonnes from 912.1 tonnes in the first quarter of 2010. This was despite an increase in mine production of 44 tonnes year-on-year, a growth rate of 7% from year earlier levels, and negligible net producer de-hedging. The decline in total supply was due to recycled gold, which was down 6% on year-earlier levels to 347.5 tonnes from 369.3 tonnes in the first quarter of 2010 and a sharp increase in net purchasing by the official sector.
• Central bank purchases jumped to 129 tonnes in the quarter, exceeding the combined total of net purchases during the first three quarters of 2010.

With the price of gold at US$1600 it’s definitely living up to its oft proven history of  acting as a safe haven in times of turmoil but after being the best performing major assets of the last decade, are the price of gold and silver going to continue higher?

The settlement of the U.S. debt impasse could see a sharp correction in  gold’s price – news of positive results could trigger a temporary price retreat.

Over a little longer term there exists reasonable, sound, and at least as far as I’m concerned, convincing arguments, that precious metals and their stocks are undervalued:

• Central banks are adding to their official gold holdings

• The European Union’s sovereign debt problems are worsening

• The Federal Reserve will continue to create money

• Expanding Chinese, Indian, and other Asian economies means growing wealth and rising inflation. An historic affinity to gold in the form of jewelry and as a saving and investment option means continued demand growth coming from the East

• Gold mining supply declining

Conclusion

Considering the seasonally strong period for gold and gold stocks is right around the corner:

• Jewelry manufacturers step up fabrication demand ahead of Christmas gift giving
• Indian dealers begin stocking up ahead of the autumn festivals and the Indian wedding season
• Chinese lunar new year
• Increased news flow from junior work programs
• Resource and Investment conferences

They might be even more undervalued then we think.

History proves the greatest leverage to a rising gold price is gold mining stocks.

I think gold juniors are going to be the most rewarding, the most lucrative way to garner the huge rewards from the coming freight train rush to gold. Those golden tracks are being laid today using the world’s currencies as ballast – when your cash is trash your gold is shining.

Monetary and fiscal authorities around the world are setting us up for an inflationary cycle. This will be the ultimate driver of the gold bull market going forward.

Gold, and gold stocks should be on every investors radar screen. Are they on yours?

If not, maybe they should be.

Richard (Rick) Mills /> rick@aheadoftheherd.com /> www.aheadoftheherd.com

If you’re interested in learning more about the junior resource sector, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership and our AOTH newsletter are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report. /> Richard Mills does not own shares of any companies mentioned in this report.

	Lead (US/ton)
CASH BUYER	1820.00
CASH SELLER & SETTLEMENT	1821.00
3-MONTHS BUYER	1845.00
3-MONTHS SELLER	1850.00
15-MONTHS BUYER	1883.00
15-MONTHS SELLER	1888.00
27-MONTHS BUYER	1855.00
27-MONTHS SELLER	1860.00

It is reported that Sichuan Province is offering to sell an 80% stake in Hui-Dong Lead & Zinc Mine for RMB 2.04 billion to any state-owned or state-controlled enterprise with a registered capital exceeding RMB 1 billion and net assets exceeding RMB 2 billion.

The buyer must make a lump sum payment. Buyers that have gone into debt at any time in the past three years are not eligible.

An senior officer of the bureau of commerce in Huidong County, Liangshan, Sichuan Province, predicted that Western Mining Co Ltd, which last year inked a cooperative agreement with the local government to develop lead zinc ore in Huidong, will probably buy the asset.

Hui-Dong Lead & Zinc Mine, which was established in 1958 with a registered capital of RMB 50.92 million, had 11.56 million tons of ore as of Jan. 30, 2009, including 1.14 million tons of zinc and 88,000 tons of lead.

It was said from the smelter officials on Monday that insufficient power supply has forced lead smelters in Henan province to cut or shut production, the latest victim of China’s power shortages this winter.

Production in the world’s top lead producing nation was already falling due to reduced supplies of lead concentrates from northern mines in the winter.

Smelter officials said metal output would fall further in January, resulting from lower output in Henan, the biggest lead producing province in China.

Primary lead smelters typically are not as seen the main industrial firms such as aluminium smelters to which local governments in Henan try to maintain power supplies, as the cost of production stoppages and restarts is high.

Regions such as Henan in central and southwest China face reduced electricity supplies after demand jumped because of freezing weather in January that triggered coal shortfalls, according to the State Grid Corp of China .

The power operator in Henan province’s industrial city of Gongyi stopped providing daytime electricity to aluminium fabricators as of last Monday, forcing them to halve production.

SHUTDOWNA sales manager at a lead smelter in Lingbao city said the smelter had closed its 100,000-tonne-a-year smelting and refining capacity on Jan 12 temporarily due to power shortages.

Local residents were also demanding higher environmental requirements for lead smelters, prompting the smelter to bring forward an upgrading plan, said the sales manager, who asked not to be identified.

Another 100,000-tonne-a-year lead smelter in Lingbao was cutting production, said a senior executive, who also asked not to be named.

But smelter officials in Jiyuan city said smelters, including China’s top lead producer Yuguang Gold and Lead and Wanyang Lead, were running nearly normal operations because overall power consumption had fallen following the closure of smelting capacity in August last year.

The capacity was likely to remain shut in February.