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From David’s Desk

Gold is pushing hard to get back into the $1540 – $1550 range.  Silver is pushing toward $37.  It may seem to many of you that there is a lid on the prices, and you would be correct, but it is like the lid on a pressure cooker.  There is pressure building beneath and the Cartel is having trouble holding the top on.

Today is the first day of summer and that is usually the slowest time of the year for gold and silver.  Couple the timing with the recent “drive by shooting” of silver (and somewhat less of gold) and it is surprising and encouraging that the precious metals are holding up as well as they are now.

Our business at Miles Franklin is very strong.  I don’t remember a stronger May/June period.  I am not sure what that is telling us.  Either you, dear readers and clients, are getting smarter and better educated to buy the pullbacks, or many of you are scared and moving funds into the safety of gold and silver.  Perhaps my constant harping that you need to get out of the dollar and into the safety of the metals is sinking in.

Watch the 10-year bond closely now.  If the bond starts to fall, and its interest rate rises (inverse of the price of the bond), then you can assume that the Fed really did back off of Quantitative Easing.  The rise in interest rates will put an additional strong damper on the real estate market (home mortgage rates are based on the 10-year rate) and the stock market.  The Fed cannot stay out of the market for long.

The following commentary was offered up in John Mauldin’s “Outside The Box” and was penned by Simon Hunt.

The Federal Reserve is likely to sit pat for some months to see how the US economy will be able to perform without the steroids provided by them. Foreign central banks have largely been absent from Treasury auctions. In quarter 1 this year, foreign central banks bought just 16% of the issuances while the Federal Reserve acquired almost 200%, according to Russell Napier. In other words, the Fed’s activities have masked the exodus of foreign central banks including China from these auctions.

If foreign central banks continue to abstain from purchasing US Treasuries, the private sector will have to fund the fiscal deficit, implying quarterly remittances to the US Treasury of some $370bn. The private sector will be able to fund these auctions but at a price. They will demand a higher return on treasury paper and the funding will mean that the free-flow of funds into equity and commodities will come to an end. Many institutions are taking risk off the table.

On our associate’s, WaveTrack International technical work, 10-year US Treasuries should be yielding around 4% later this summer and 6% a year or so later. The repercussions of such a change in the yield structure will have global consequences, not least on stock and commodity markets.

In today’s daily, there are two especially strong articles – by Andy Hoffman and Jim Willie.  I hope you find the time to read them.


David Schectman

Miles Franklin