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Will we see oil break out to the upside?  I think so. Surging demand from China and other emerging markets is filling the gap left by declining demand in OECD countries.  Mexico oil production has dropped 25% since 2004 and is expected to fall again in 2010.  The U.K.-based Guardian newspaper quotes IEA sources admitting the agency’s figures for future oil production were inflated because of U.S. pressure.

But I have stops in place in case I’m wrong.

If the ETF sells some of its gold or silver, as funds typically do to pay expenses, including management fees, then gains or losses on such sales flow through to the fund’s investors, though they receive no cash distribution. In the case of gains, the investors must include their share of the profit in gross income, which likewise would be taxable at the maximum 28% rate.

The SPDR Gold Trust (ticker: GLD), a popular gold-backed ETF, instructs shareholders on its Website how to compute the gain or loss when the ETF sells metal to pay expenses. (See http://www.spdrgoldshares.com/media/GLD/file/SPDR_Gold_Trust_2008_Tax_Information.pdf.)

These tax rules also apply to other precious-metals ETFs, such as the iShares Comex Gold Trust (IAU) and iShares Silver Trust (SLV). But they don’t apply to ETFs that use futures or derivative contracts to track the performance of metals, such as PowerShares DB Gold (DGL), PowerShares DB Silver (DBS) and PowerShares DB Precious Metals (DBP). Exchange-Traded Note funds, or ETNs, also have different tax rules, as do ETFs that buy stock in companies in precious-metals-related businesses.

Go read the whole thing HERE (subscription required.

And as I’ve said previously, my preference for long-term buy-and-hold gold is to own it physically.

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Total identifiable gold demand for the third quarter 2009 reached 800.3 tonnes, or US$24.7 billion in dollar terms, up 15% from the second quarter, as gold’s long-term store of value and wealth preservation qualities continued to attract investors and consumers. Jewellery and investment demand in non-western markets rebound from the very low levels seen in the first quarter, while industrial demand started to recover in response to an improvement in economic conditions. 

You can read the latest numbers for yourself here:  http://www.research.gold.org/supply_demand/

To be sure, gold demand fell 34% compared to a year earlier.  But speculative buying, a surge of demand for gold in China and expectations for more official sector bullion buying are keeping prices elevated.  And the rise from the dismal 2Q demand — boosted by consumer buying — is pretty bullish.

My takeway:  Consumer demand is rebounding even in the face of higher prices. That means consumer are adjusting to higher prices (the average price of gold in the 3rd quarter was over $950 an ounce), which makes it that less likely that gold prices will go below $1,000 an ounce.

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Federal Reserve Bank of St. Louis President James Bullard said policy makers may not start to raise rates until early 2012 while facing a “too low for two long” argument that may “weigh heavily” on the central bank.

The Fed’s “main issue” will be how to avoid spurring inflation while adjusting its $1.725 trillion in asset purchases, a main tool in its effort to sustain economic growth, Bullard said today in the text of slides for a St. Louis speech.

Bullard’s statement sent the dollar swooning and gold and silver soaring.

* With apologies to Bill Shakespeare.

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We had some wonderful neighbors who moved to a new neighborhood at the height of the housing bubble.  They paid about $420,000 for their new home.

Now, the bubble has imploded.  A home on the same street that they live on - the same model as their house - is LISTING for $185,000. 

In other words, they are never getting their money back. 

After discussing things over with a lawyer, they decided to stop paying their mortgage.  The bank said pay up or we’ll foreclose.  My friends told the bank:  “Show us the official mortgage paper.”

The bank can’t do that, because  it sold, sliced and diced that mortgage from here to Kingdom Come.  The foreclosure went to court … and the judge threw the case out.  So, our friends are living in their house rent-free - which they’ve been doing for months — while they see what happens next.

Now, a bunch of their other friends are talking about doing the same thing.

You’ll notice a couple of things …

The stigma of foreclosure has evaporated.  Friends and neighbors aren’t talking behind their backs - they’re talking to them to learn how to do the same thing.

The solid middle class is in revolt.  This is a very hard-working couple, immigrants from Israel.  They’re still paying their association dues because, as our friend explained to my wife, “we use the facilities, so we should pay for them.”  They aren’t creeps, they aren’t crooks, and they feel the banks have already profited handsomely from middle class misery, and they aren’t going to throw more money down a hole.

What comes next?  I don’t dare to guess.  But if you think the banks are in trouble with foreclosures now, just you wait.

UPDATE:  In response to a couple of comments, I’d like to point out that all ethics are relative, and that goes double when it comes to banks.

I have another friend, a hard-working dude, maybe not a rocket scientist but a sweet guy.  About 10, maybe 12 years ago, he was getting close to paying off the mortgage on his little house. It wasn’t a great house, but it was his house. But for one reason or another, he missed a couple of payments.  You might think the bank might work with him.  But instead, they started foreclosure proceedings and had him kicked out of his house when he had very little left on the mortgage.

Unethical?  I think so. And absolutely legal.  I don’t know what the bank did financially that year, but let’s say it did well.  Did the financial analysts on TV say, “yeah, they had a good year, but they’re real jerks for kicking that guy out of his house in West Palm Beach.” Of course not.  Because what the bank did was legal. No one worries about a bank’s ethics.  THAT would be crazy!!

Now some other people are doing what I wouldn’t do.  A bunch of other people are watching them and thinking that maybe they’ll do the same thing. There is a tidal wave building, and you would be foolish to wait until your feet are getting wet.

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VI. Subversion is the cheapest path to victory. So cheap, in fact, as compared with the costs and risks of battle, that it must always be attempted, even with the most seemingly irreconcilable enemies. Remember: Even religious fanatics can be bribed, as the Byzantines were some of the first to discover, because zealots can be quite creative in inventing religious justifications for betraying their own cause (”since the ultimate victory of Islam is inevitable anyway …”).

Read the rest HERE.

Boy, this puts me in the mood for They Might Be Giants and their song “Istanbul”

OTHER NEWS YOU CAN USE

Why The Financial Crisis Isn’t Going Away Positive growth is an illusion created by government spending. In fact, the economy is still flat on its back. Consumer spending and credit are in sharp decline. Unemployment is steadily rising (although at a slower pace) and wages are flatlining with a chance of falling for the first time in 30 years. Deflationary pressures are building. The talk of a “jobless recovery” is intentionally misleading. Jobs ARE recovery; therefore a jobless recovery merely points to asset-inflation brought on by erratic monetary policy. Surging stocks shouldn’t be confused with a real recovery.

Another Central Bank Bites the (Gold) Dust Mauritius, a small nation comprising a collection of islands in the Indian Ocean, is the latest of sovereign central banks to purchase gold bullion from the IMF bank, which is scheduled to sell 403.3 tons. By doing so, Mauritius has doubled its gold holdings to 3.9 tons.

Calls Rise for New Global Currency International Monetary Fund director Dominique Strauss-Kahn says the days of one country’s currency as the global benchmark are numbered. The U.S. dollar remains the currency standard, but globalization demands a new global currency that provides representation for the growing importance of a variety of major economies, Mr. Strauss-Kahn said during a trip to China.

Mo-o-o-om! Jesse is depressing me again! Read: Have Home Prices Only Fallen 1/4 of the Way to Trend?

By the way, this is a short film of me on top of that very high mountain in Chile …

Have a good Wednesday

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Anyway, gold and silver are both having good days considering that the U.S. dollar is higher.   But one question I often get is which to buy NOW – gold or silver.

Let’s look at a chart. Wordpress won’t let me post a chart today — another problem that has delayed things — but here’s a link to a chart on Stockcharts.com …

http://stockcharts.com/h-sc/ui?s=$GOLD:$SILVER&p=M&yr=7&mn=0&dy=0&id=p02622752128&a=183692670

 So, you can see the gold-silver ratio is coming down.  This has been the trend, and until the trend changes, silver will probably appreciate (percentage-wise) faster than gold.

On the other hand, I don’t see anything wrong with owning gold, either.  So, silver for a quick trade, both gold and silver for the longer-term.

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I’m so glad you asked, dear reader.  I’ve been without decent Internet access for three days, so I have some catching up to do.

Yesterday we boarded a plane in Chile, and flew and flew, making a stop in Santiago, until we finally landed at an airport in the Patagonia region of Argentina.  In my ignorance I’d thought of Patagonia as a windswept empty space, but this part looks like Switzerland – it is quite beautiful.

Unfortunately, the airport was closed – or at least the customs/immigration part of it was closed – when we landed.  “They closed the country?” I wondered aloud.  But eventually, an hour and a half later, an immigration officer showed up to process us.  Then we boarded a bus and came to the town of Bariloche.

Check this out …

This place looks like a Swiss ski village – it is gorgeous, and wealthy to boot AND they have a local chocolate industry.  Unfortunately, it has nothing to do with mining; we just have much further to go, and we needed to stop for the night somewhere.

This morning, at 6:45 am, we are going to get back on the bus, go back to the airport, get back on the plane and fly and fly further into Patagonia. We’ll fly over a mining project or two, then land and go see them by vehicle, and get to walk around.  We are spending the night in Puerto Deseado, a town that I’m told pretty much defines the word “bleak.”

Then on Sunday, it’s another early morning as we board buses and planes to get to Buenos Aires.  I’ll continue on to Miami and land about 4:30 Monday morning.

My company has scheduled me to come in for some camera time on Monday – we’ll see how that goes.  I’ll probably be incoherent, LOL.

I’ll talk at you on Monday.

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China on Thursday appeared to signal that it would allow its currency, the yuan, to rise against the dollar. The Chinese central bank said Thursday it would alter how it manages the yuan, which is currently pegged to the dollar. That change raised hopes among economists that China was preparing to allow its currency to rise in value, a change that would boost the competitiveness of American products in China.

Now we’ll have to balance this against the Obama administration’s announcement that it wants to cut Federal domestic spending.  The wise thing to do would be to cut military spending(maybe scale back on the TWO WARS we’re now fighting), but I’m not one to accuse the Obama adminstration of being wise

These are the kind of things that could push the U.S. dollar around. China’s announcement could further erode support for the dollar; I believe the currency peg is part of what is supporting the buck.  Of course, the Chinese may just be keeping up appearances and not really going to do anything.  Likewise, the Obama administration is keeping up appearances about reining in spending.  Maybe we’ll get a bounce in the dollar on the news from the White House, but the China news reinforces the longer-term trend, and that is bullish for gold.

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