SINGAPORE, March 10 (Reuters) - An official from the Government of Singapore Investment Corp (GIC) said he expects more weakness in financial markets in the next 12-18 months, and recommended investors hold gold and other safe assets such as government bonds.

GIC, one of the world's largest sovereign funds with an estimated $200 billion-plus in assets, has invested aggressively in troubled global lenders, picking up multi-billion dollar stakes in Citigroup (C.N) and UBS (UBSN.VX) in late 2007 and early 2008.

There is "systemic capital inadequacy globally", and the world will probably see "three years of a very vicious downcycle," GIC's director of economics and strategy, Yeoh Lam Keong, told the Investment Management Association of Singapore conference on Tuesday

"This is a very destructive process for assets."

Yeoh, who said he was speaking in his personal capacity, showed a slide prepared by GIC that indicated global writedowns in the financial sector could reach $3.8 trillion by 2013 and that only about 30 percent of the losses had been booked so far.

Yeoh suggested investors hold gold, sovereign bonds and currencies such as the Japanese yen, Chinese yuan and Canadian dollar.

He said he liked gold because governments were under pressure to cheapen their currencies to compensate for falling demand, and that some countries such as the United States and Britain would eventually be forced to monetise their debt by printing money.

"I would avoid these currencies like the plague," he said in reference to the dollar and sterling.

From Stockhouse

Silver prices are poised to outperform gold while moving dramatically higher later this year due to increasing investment demand, attendees of the world’s largest mining conference in Toronto were told earlier this week.

Speaking at the Prospectors and Developers of Canada Association (PDAC) annual convention, German investment fund manager Oliver Frank told a packed room at the “Accessing European Capital” forum that silver will likely end the year in the $25 range. This bold projection is almost double current silver prices.

A late 2009 surge in pent-up buying demand, particularly among Europeans, will prove to be the catalyst to silver reaching historic new highs, added the CEO of the Butzbach-based investment fund, Silver Capital AG.

He also believes that heightened global investment demand will also help gold to breach the hallowed $1,500 mark by year’s end – an appreciation of about 60% over its March ‘05 spot price close.

Both scenarios should stem from investors continuing to flock to gold and silver as “safe haven investments” in response to the onset of a hyper-inflation in the U.S. economy, Frank added.

Yet, he believes silver should enjoy a bigger percentage boost in value because physical demand has been consistently outstripping supply in recent years.

“In Europe -- Germany in particular -- everyone is trying to buy silver bars and coins, rather than gold, but there just isn’t the physical supply available. Global above-ground inventories are severely depleted. So, people these days just can’t get their hands on enough silver,” Frank said.

Hence, it is becoming increasingly popular for investors to gain access to the silver market by way of a proxy. This involves buying into a silver-denominated exchange traded fund (ETF) – an index fund that tracks silver’s performance. No less than 200 million ounces of silver have changed hands in this manner over the past 12 months, which is an unprecedented figure, Frank pointed out.

However, his countrymen have a sentimental attachment to buying physical silver, particularly in the form of coins, as this proved to be a crucial investment lifeline for many of them during the 1930s, Frank says. This was an era in which hyper-inflation ravaged the German economy. In fact, Germans have traditionally valued silver coins as a hedge against political or economic crises dating as far back as the 15th century.

Frank also forecasted that industrial demand for silver will remain robust during the balance of the year, especially since it has a growing reputation for being an “enviro-metal.” This is due to its anti-bacterial qualities and its uses in a growing diversity of high tech energy-saving applications.

He added that all of these developments will prove to be a boon to ‘emerging primary silver producers’ (ones that don’t extract silver merely as a by-product of gold or base metals mining). This is especially the case now that silver is about to establish a sustained trend reversal, he predicted. It will lead to silver revisiting the $15 level over the next three months, before re-establishing its $20-$21 highs of 2008 by late summer.

Furthermore, a rising tide market for silver prices won’t be the only major value driver for primary silver producers this year, Frank noted. Notably, oil’s pronounced drop in price in recent months has significantly driven down mine operating costs – a scenario that is expected to continue for the rest of 2009.

Any emerging silver producer that matches lower mine operating costs with an expansion of silver inventories and a corresponding increase in output this year is onto a winning strategy, he added.

“Money managers and other smart money are shifting more of their cash positions into the stocks of silver producers. Companies like First Majestic are doing the right thing right now by raising money to spend in the ground,” he went on to say.

“This will translate into increased output to capitalize on heightened demand for silver, and corresponding higher silver prices. This should generate increased earnings and boost share price valuations.”

(First Majestic Silver Corp. [TSX: T.FR] [Frankfurt: FMV] announced the closing of a $21.2 million equity financing on March 5, 2009).

In the event that any of the world’s tiny handful of emerging primary silver producers manages to ramp up production to a critical mass of around three million ounces, they will surely benefit from meaningful economies of scale, Frank said.

This should provide a comfortable earnings buffer against any future volatility in silver prices. And that, he says, makes for a much more dependable and successful business model that will attract considerably more buying interest from institutional investors.

Great Panther Resources Ltd. (TSX: T.GPR, Stock Forum) is another fast-growing silver producer that Frank singled out as an example of a company that has very successfully curtailed mine operating costs while maintaining a steady trend of setting new year-on-year production records.

“They’re doing the right things to ensure a good upside for their share price in 2009,” he added.

from MarketWatch

Gargantuan derivatives market weighs on all other issues

There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy.
Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.
But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.
To be sure, the derivatives market is international. But much of the trouble we're in began with contracts "derived" from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values.
Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn't even value her portfolio because "no one knows anymore who is on the other side of the trade."
Derivatives pricing, simply put, is determined by what someone else is willing to pay for the contract. The value is based on an artificial scenario that "X" will be worth "Y" if "Z" happens. Strip away the fantasy, however, and the reality of the situation is akin to a game of musical chairs -- without any chairs.
So now the music has finally stopped.
That's why stabilizing the housing market will do little to take the sting out of the snapback we are going through on Wall Street. Once people's mortgages were sold off to secondary buyers, and then all sorts of crazy types of derivative securities were devised based on those, and those securities were in turn traded on down the line, there is now little if any relevance to the real estate values on which they were pegged.
We need to identify and determine the real value of derivatives before we give banks and institutions a pass-go with more tax dollars. Otherwise, homeowners will suffer as banks patch up the holes left in their balance sheets by the derivatives gone poof; new credit won't be extended until the raff of the old credit is put behind.
It isn't the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished -- trading phony instruments to the tune of $700 trillion.
Let's figure how to get out from under that. Then maybe the capital will begin to flow again through the markets. Right now, this elephant isn't just in the room, it's sitting on us.

from LeMetropole Cafe

Everybody knows that the Dow and S+P are both down over 50% from their highs and the NASDAQ is down something like 80% from it's highs back in 2000, but that is not the real story. The real story is that the Generals of business and finance have already capitulated and surrendered 80-90% of their value in a mere 18 months or so.

For example, GM, GE, Merrill Lynch, Lehman Bros., Fannie and Freddie, Citigroup, Bank of America, Countrywide Credit, Washington Mutual, MBIA, AMBAC, Ford, AIG, The Hartford, Eastman Kodak, International Paper, Goodyear Tire, Alcoa, Xerox, Gannett, Macy's, Tenet Healthcare, Wachovia, JDS Uniphase, MGIC, Liz Claiborne, [there are plenty more] have all been hammered for more than an 80% loss since mid 2007. Do you recognize any of these names? Are [were] they all not leaders of their various industries? American institutions? Yes, they were the Generals, the leaders, BLUE CHIPS! They are all now crippled and may not even survive to help your portfolio.

Today the talk is GM's warning of bankruptcy and GE potentially having its laughable AAA rating downgraded. Here is a thought, Gold cannot go bankrupt nor have its "credit rating" downgraded, but it is a "barbarous relic" that pays no interest, so who in their right mind could need it? Heck, who needed it 10 years ago when it was $250 per ounce or 18 months ago at $600-700 [both tops in the stock market]? Back in those days you had to be wearing a tinfoil hat before your purchase, otherwise they gave you one free with your purchase of bullion. Today, it is changing, and fairly rapidly as far as I can tell since many "staid" institutions are now "diversifying" into metals [how come these guys don't have the same tin foil hat requirement we had?].

To my questions above, the answer is EVERYBODY. Everybody needed metals back then but just didn't know it yet, today everybody needs it and there is much less stigma attached. You see, the stigma is fading away because we are now in the "survival" phase and it's becoming every man, woman and child for themselves.

The Generals can't help you anymore, heck the government can't even help the Generals anymore, much less the lowly sergeants and privates. Then the question becomes, "who will help [bailout] the government? This is key, once the public comes to the stunning realization that the government can no longer help nor be helped, the tin foil hat requirement will gone for generations. By the time everyone realizes "it's over", it's too late. Too late to purchase bullion because it will have already been withdrawn from the market place, this is what is happening now.

With what I see coming, industrial stocks won't help you, cash and bonds won't help you, not even tin foil hats will help you [unless they are Gold disguised as tin]. The only bridge to the next currency is built with precious metals and you will need some metal to pay the toll. Once this "stunning realization" comes, it will be the wildest most woolliest financial scramble ever recorded in history. It is better to shop early and avoid the rush!

Got Gold?

from Lemetropole Cafe

Have you ever cared for live plants before? If you have, then you know that as the plant grows and becomes mature it will lose some leaves. They turn brown, start to droop and given time they will fall off. It is always helpful to "clip or cut" these dieing leaves off so that the main plant doesn't get "life" sucked out of it trying to support dead growth. No matter how much fertilizer you use, leaves will be shed and can never be brought back to life. This is natures way with plants AND business, governments have clearly forgotten this and believe that none of the "big leaves" should be allowed to die.

This is the current case with AIG. AIG is apparently so big that if they get clipped the whole plant will go terminal. This is apparently the case with GM, Citi, Bank of America, Fannie and Freddie, etc.. In reality, the "plant" is capitalism, the "trunk" is actually the Federal Reserve and by default JP Morgan. I believe that the "next attack" will be directed at JP Morgan. They so far have not confessed to the horrendous losses that others have taken. This "genius" on their part would be believable IF and only IF, they were not reporting the huge profits during the bubble buildup phase. If they were leaning against the wind back then, they would not have reported the huge and continually growing profits that they had. It was obvious by their P+L statements that they were not contrarians, they were leaders of the pack.

President Bush signed an executive order back in 2002 or '03 that basically said "no company will need to report a loss if it was incurred in the interest of national security". I believe that this executive order is why JPM was able to throw caution to the wind and build up it's derivative book into the $ trillions while doing the Fed's bidding. It is this situation that very well could be the last straw. Were the current situation to be turned toward JPM, I believe the Fed would be powerless to come to their rescue if for no other reason, THEY ARE TOO BIG! They have so far stayed "above the fray", for me, this has been far too curious and can only be explained in my mind by the executive order.

We may or may not ever see the real deal as to what happened behind the scenes of the greatest financial orgy and fraud of all time, we will surely see the aftermath effects. The chart of the Dollar [Fed] and the chart of JPM should in my mind, join at the hip here and move in lockstep in the direction of their true values. No matter what legislation, court order, or executive order has been spewed forth by government, true value is true value and the market WILL eventually sniff it out and make a true judgment.

The global financial system has become so intertwined that not even the smallest leaf can be allowed to fall to the ground. Lehman's failure showed just how only one "leaf" hitting the ground can shake the whole tree. Not that keeping them alive would have changed anything but it did demonstrate just how fragile the entire system was. Bill Murphy coined the phrase "TOO BIG TO BAIL", and that is exactly where I think we are now. There are just too many huge and over leveraged financial institutions for the Fed and Treasury to keep feeding and propped up. The financial storm has now certainly reached land and the wind and rain is howling in London and Washington D.C. not to mention everywhere else on the planet. This is it, this is 1930 all over again except many times worse because global governments have stepped into the fray with their fiat currencies and are in the process of being swept away.

For those that have Gold and metals related assets, times will be tough and society ugly. For those without, well, they will be without and I believe they will have to start over again from zero. None of this had to happen and in fact would not have happened had we followed the rule of law set forth by the Constitution, money MUST be either Silver or Gold. Our founding fathers were not stupid people and certainly saw 200 years ago what could [would] happen if the money were to become false. Many were farmers and knew that deadwood must be cut to preserve the tree. It amazes me that with all the so called progress we could be back in the financial stone age one day soon.

From The Economist, London

It is 1979 and Harry "Rabbit" Angstrom, the hero of John Updike's series of novels, is explaining to his wife why he has just spent more than $11,000 on 30 gold krugerrands. "The beauty of gold is, it loves bad news," he says. Three decades later, gold is once again thriving on despair. Before Christmas, a troy ounce could be bought for around $800. By the third week in February, gold was trading at close to $1,000 an ounce.

A surge in demand for gold as an investment lies behind the jump in prices. Flows into exchange-traded funds, which buy and store gold for their shareholders, rose from 105 tonnes in January to 208 tonnes in the first three weeks of February, according to Suki Cooper at Barclays Capital. At that rate, inflows will soon surpass the total of 322 tonnes for the whole of 2008. Buying by investors has more than made up for a slump in gold-jewellery purchases in key markets, such as India and Turkey, where higher prices and wilting exchange rates have crushed demand.

People have long viewed gold, rightly or wrongly, as a hedge against high inflation and a weak dollar. So when the gold price briefly broke through the $1,000 mark in March last year, it was easily explained by fears that rising commodity prices (and, in America, a weak dollar) would feed inflation. An earlier run-up in gold prices, between 2002 and 2005, coincided with a sustained fall in the dollar. But now gold is strong even as the dollar thrives and economies face deflation.

Gold's recent progress seems to be a response to generalised fears of economic turmoil. When supposedly safe savings vehicles, such as bank deposits, look shaky and offer scant returns, gold has greater appeal as an alternative store of wealth. It also looks like an attractive each-way bet. If drastic cuts in interest rates work too well, that will fuel inflation. If they do not work, prices of assets, such as stocks and houses, will sink further.

Like Updike's protagonist in "Rabbit is Rich," the new wave of gold investors typically have wealth to preserve, according to Adrian Ash at BullionVault, an online service for gold investors. "Gold is something you buy if you have something to lose," he says. What links today's gold fever with the 1970s rush is negative real deposit rates. Many savers now prefer a claim on gold in a vault to one on cash in the bank. There is less risk that a counterparty blows up, and the "carrying cost" of gold in terms of lost interest is, in any case, vanishing.

How high might the gold price go? Gold bugs talk excitedly about it reaching $2,300, which would match the January 1980 peak in real terms. Already the gold price is above its average since 1972 when calculated in today's money. There is a limited supply of gold and lots of potential buyers -- ideal conditions for a bubble, says Stephen Jen at Morgan Stanley. If gold is burnished by grim news, it seems likely to become still more alluring.

From Moscow Times

Vyacheslav Shtyrov, president of Sakha, approached Prime Minister Vladimir Putin on Wednesday with a plea for help. The sparsely populated republic, home to companies including Transneft, Surgutneftegaz and Mechel, is suffering from the drop in prices for gas and coal.

Sakha is having trouble keeping up with its investment goals for 2020 and the region's labor market is suffering, Shtyrov said at the meeting.

Putin listened and then took a breath.

"Vyacheslav Anatolyevich," he said, addressing him by his patronymic, "the global prices of coal, gas, metals and even diamonds have fallen. But the price of gold is rising -- and gold is mined on your territory."

When Shtyrov called attention to miners' problems with creditors, he was once again rebuffed. "We'll solve the problem with gold mining," Putin said. "Especially since -- I'll say it again -- I'm well aware that the price of gold is rising on world markets."

While the price of gold might not be enough to save Sakha single-handedly, the prime minister, for the most part, is right.

Minus a slight setback this week, the commodity's value has increased steadily since Nov. 12, when it reached an annual low of $712.30 per ounce. Between then and this year's Feb. 20 high, it has gained 39.4 percent to $992.90.

Gold's decline this past week reflected a correction of a sharp rally, said Lenar Khafizov, a metals analyst at Rye, Man & Gor Securities. On Friday, prices for the metal fell to $984.74 an ounce, down 4.2 percent from the previous week.

Nonetheless, the rally should continue through the first half of the year, with gold reaching a maximum price of $1,150 an ounce in May or June, Khafizov said.

While gold tends to fluctuate in reverse correlation to the dollar, the longtime safe haven has been given an extra boost from the vulnerability of foreign currencies.

The leader in the Russian market is Polyus Gold, which saw its shares on the MICEX rise 172 percent from 448.95 on Nov. 18 to 1,220.46 on Friday. Shares of gold and silver producer Polymetal grew 207 percent on MICEX from a yearly low of 70.03 on Nov. 20 to close last week at 213.86.

Russian gold producers have also benefited from the falling ruble, said Nikolai Sosnovsky, a metals analyst at UralSib. "A strong gold price coupled with a weak ruble means lower cash costs for production, which in turn means better financials this year," he said.

"UralSib believes 2009 will be tough and we don't see a recovery this year," he said. "We don't see any positive movement in global economies, and for the moment that will keep gold prices high."

It remains to be seen, however, how the news will play out for Shtyrov. In a statement dated Thursday on the Sakha web site, Putin's second reminder on the price of gold appeared in a slightly different form from the official transcript.

"I think we'll solve the gold mining question. Especially since the price of gold on world markets is rising," Putin said, according to the Sakha statement.