Why Citi says investors should stay away from silver

Citi’s taking cues from investor bets on silver, and right now, those bets are going against the white metal.

I haven’t been able to locate a copy of the research note that Citigroup Inc. (NYSE:C) sent to investors on Monday, but Marketwatch did. According to them, Citi’s taking a bearish stance on silver.

Indeed, the company expects silver bullion prices to fall 10 percent to $27 an ounce in 2013. They expect prices to stay roughly where they are in 2012 around $30 an ounce. Without getting our hands on a copy of the research note, it’s hard to say why they’re so bearish on silver, but we do have hints.

“The culmination of changes has resulted in a preference for base and precious metals over the bulk commodities,” the bank wrote (per Marketwatch). “Within these various commodities the conviction calls are in palladium, nickel, and gold on the bullish side and copper and silver on the bearish side.”

That means the bank’s taking cues from investor bets on silver, and right now, those bets are going against silver. There could be a lot of reasons for that. Citi specifically mentioned slower growth in China, which will dampen industrial demand for silver behind the great wall. In addition, there are several factors the bank didn’t mention: the dollar’s relatively strong, inflation’s in a downtrend and silver production is on the rise.

I wouldn’t count the white metal down and out yet, though. As Chris Poindexter points out at Townhall.com, the Fed can’t sit still on a strong dollar for long.

“The longer the dollar strengthens, the less competitive our exports become and that threatens the jobs recovery and feeds our massive trade deficit,” Poindexter writes. “It’s likely the Fed will be forced to consider additional easing. … I still expect gold and silver prices to recover somewhat this week but we won’t see any big moves until clearer guidance emerges on U.S. currency policy or some other news dumps us out of this narrow trading range.”

I agree. There just aren’t any major drivers for silver right now, and that means the fast money is looking elsewhere. It’s almost enough to make the contrarian in me start buying more silver. Right now, though, I’m more focused on mining. Stay tuned to our site for updates on the breakout we expect to see in gold and silver mining stocks.

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Gold margin requirements history on the COMEX

Review a full list of the changes to Tier 1 gold margin requirements for COMEX 100 gold futures contracts since 2009.

The Comex is owned and operated by the CME Group, which acquired the Comex on August 22, 2008. The CME Group sets gold margin requirements based on volatility in the futures market. The more frothy the markets, the higher the CME sets margin requirements. Here’s a full list of the changes to Tier 1 gold margin requirements for COMEX 100 gold futures contracts since 2009:

Jan. 8, 2009

Initial: $5,807.70
Maintenance: $4,302

Jan. 22, 2009

Initial: $5,398.65
Maintenance: $3,999

Aug. 21, 2009

Initial: $4,499.55
Maintenance: $3,333

Dec. 15, 2009

Initial: $5,402.70
Maintenance: $4,002

Feb. 12, 2010

Initial: $6,747.30
Maintenance: $4,998

April 30, 2010

Initial: $5,738.85
Maintenance: $4,251

Nov. 16, 2010

Initial: $6,075
Maintenance: $4,500

Jan. 21, 2011

Initial: $6,751.35
Maintenance: $5,001

June 20, 2011

Initial: $6,075
Maintenance: $4,500

Aug. 11, 2011

Initial: $7,425
Maintenance: $5,500

Aug. 25, 2011

Initial: $9,450
Maintenance: $7,000

Sept. 26, 2011

Initial: $11,475
Maintenance: $8,500

Feb. 13, 2012

Initial: $10,125
Maintenance: $7,500

Source.

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Gold-silver ratio from 1840 to 2010

We can’t always see the forest for the trees. That’s why I was taken aback a bit by the incredible range we’ve seen in the gold-silver ratio over the past 170 years or so

We can’t always see the forest for the trees. That’s why I was taken aback a bit by the incredible range we’ve seen in the gold-silver ratio over the past 170 years or so. The chart below comes from a rather controversial document (dubbed Proviso 89.145) that was recently published by the South Carolina treasurer’s office.

Click for a larger version:

The chart only lists the gold-silver ratio every 10 years, but it’s remarkable to see that even then the ratio has swung from as low as 15.5 to as high as 97.3. That makes today’s gold-silver ratio of 51.9 seem down-right average.

For more extensive charts on the gold-silver ratio, check out Goldprice.org.

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Absolute Proof of Gold and Silver Price Manipulation, Part 2

It’s not every day that a governmental office points out market manipulation – particularly when that manipulation involves the Federal Reserve, the LBMA and two international banking giants.

This article is a companion to another recent post: Absolute Proof of Gold Price Manipulation?

It’s not every day that a governmental office points out market manipulation – particularly when that manipulation involves the Federal Reserve, the LBMA and two international banking giants. That appears to have happened in a recent report from South Carolina’s treasurer.

In the rather innocuous-sounding Proviso 89.145, the South Carolina State Treasurer’s office is advising the South Carolina General Assembly on whether or not to invest public funds in gold and silver. The short answer is the treasurer’s office thinks gold is in a bubble, but that’s not what’s interesting about Proviso 89.145. What’s interesting is the short paragraph that starts at the bottom of page 1:

Similar to other commodities, the value of gold and silver is determined by supply and demand, as well as speculation. The Federal Reserve, The London Bullion Market Association, JP Morgan Chase, and HSBC Holdings have practiced fractional-reserve banking and engaged in naked short selling causing artificial price suppression.

“This acknowledgement will eventually have profound implications on the price of silver and gold,” writes Christian Garcia at GoldSilver.com. “As awareness grows of this manipulation and the CFTC may be forced to act. We believe the price increases ahead will be mind numbing!”

Perhaps all competent state treasurers accept the fact that there’s collusion to keep the price of gold and silver down. After all, a panicked rush out of the greenback could cause the demise of the dollar (and the world’s largest economy).

Regardless of how this plays out, I’m stashing a copy of Proviso 89.145 on our server in case it “disappears” from the sc.gov site.

Like this post? Click for one of the most incredible charts we’ve ever seen in our related story: Absolute Proof of Gold Price Manipulation?

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The last peak: GFMS calls for gold above $2,000 an ounce early in 2013

The demand story for gold may be waning, but it’s definitely not time to count the metal’s bull run over yet.

Gold consultancy GFMS expect to see one last thrust upward in gold prices, and they expect it to happen early next year.

“We are expecting still that we are going to see a push above $2,000 in 2013, but it may be that 2013 marks the high water mark for the market,” company chairman Philip Klapwijk told Reuters.

Klapwijk believes the catalyst for higher gold prices could be hints from the Federal Reserve that another big round of quantitative easing is on its way coupled with the potential for more economic problems in Europe.

Still, GFMS seems to believe there are signs that the 12-year bull market in gold prices could be coming to an end. Here are three reasons why:

1) Increased supply. Gold production has hit record highs over the past two years. 2011 saw miners dig up 2,818 tonnes (nearly 100 million ounces). That’s 3 percent more gold than we saw in 2010, which was also a record year for gold production. Higher supply means we’ll need a big influx of gold buyers in order to keep prices from slipping.

2) Decreasing jewelry demand. The single largest consumer of gold is the jewelry market, and jewelry fabrication fell 2 percent in 2011 to 1,973 metric tonnes (2,175 tons), per GFMS. Jewelry demand was buoyed by strong buying in China and India last year, but it’s unclear how much longer that demand can keep up with growing supplies.

3) Investors ready to take on more risk. Although demand for physical gold bars and gold coins was strong in 2011, total investment in the yellow metal actually fell last year, according to GFMS. That selling took place in the paper markets as investors moved into riskier asset classes (or even into cash).

If the Fed actually starts raising interest rates in 2014, a lot of investors will likely move out of safe haven investments on a quest for higher yields. That would probably be a good sign for the broader economy but bad news for gold investors.

The moral of the story? The demand story for gold may be waning, but it’s definitely not time to count the metal’s bull run over yet.

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Top 5 copper price forecasts for 2012

Get an idea of how much growth analysts expect to see in China and around the world in 2012 by taking a look at their copper price predictions. Here are five of our favorites.

Early in December 2011, copper prices started rising, and they’ve shown little sign of slowing that climb since the start of the year. Over the past two months copper prices have risen 11 percent from 3.40 a pound to more than 3.80 a pound.

Since copper is so integral to the expansion the global economy, economic growth means higher copper prices. The numbers are skewed toward China, though. Last year, the PRC alone accounted for 40 percent of global refined copper demand. We can get an idea of just how much growth analysts expect to see in China and around the world in 2012 by taking a look at their copper price predictions for the year. Here are five of them:

1) Average of $3.85 a pound. Cochilco, the Chilean government’s copper commission, raised their copper forecasts last week from $3.50 a pound to a 2012 average of $3.85 a pound. Cochilco cited increased demand out of China as the driver for the move.

2) Up to $9,000/mt. Standard Bank is predicting global copper consumption will rise at a relatively mild 1.2 percent in 2012. That means “demand for copper is unlikely to be strong enough to support prices above $9,000/mt for most of the year.” That’s roughly $4.08 per pound. “We think copper will average $7,700 with good support when we go below $7,000,” Walter de Wet, head of commodities at Standard Bank, told ResourceInvestor.

3) Copper north of $9,000 a tonne. In contrast to predictions from Standard Bank, Barclays Capital analysts predict copper prices will trade “consistently above $9,000 a tonne by the second half of the year” (per ResourceInvestor).

4) $7,350/ton. Early in January 2012, Deutsche Bank AG reduced their 2012 forecast for copper by 18.8% to $7,350/ton. “We expect that near-term deflationary fears from the worsening economic picture in Europe and intensifying hard landing fears in China may continue to depress pricing for the base metals complex,” the bank said at the time.

5) $10,000-a-ton. Strong copper price performance at the start of 2012 had some investors speculating that the red metal could hit $10,000 a ton by the end of the year. “Six months from now the market may be genuinely tight, but it is definitely not genuinely tight today and so I would treat calls of $10,000 a ton with a pinch of salt,” BNP Paribas strategist Stephen Briggs told the Wall Street Journal.

Photo by cobrasoft.

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The Top 5 best triple-net lease REITs

Triple-net lease REITs work like this: a company buys an office building then leases it back to the seller for a long term (typically 10 to 20 years). This is beneficial…

Triple-net lease REITs work like this: a company buys an office building then leases it back to the seller for a long term (typically 10 to 20 years). This is beneficial to both the buyer (the REIT) and the seller (the tenant).

How? The seller no longer has a mortgage to deal with, and they get a tax deduction for paying rent. The REIT gets a steady stream of income in the form of rent checks.

The REIT also benefits because the seller has to keep paying property taxes, insurance and maintenance costs (per the lease agreement). That’s where the name “triple-net” comes from. It’s generally regarded as a safer type of REIT than those that deal in mortgage derivatives and riskier mortgage securities.

A handful of REITs specializes in this form of triple-net leasing. Here are five with outstanding yields:

1) Caplease (LSE), 6.23% yield. A small-cap REIT focused on retail and office space.

2) Lexington Realty Trust (LXP), 5.61% yield. Another small-cap REIT focused on retail and office space.

3) LTC Properties (LTC), 5.32% yield. LTC focuses on the growing and lucrative health care field with leases on nursing and health facilities.

4) National Retail Properties (NNN), 5.65% yield. Holds 1,500 properties throughout the United States.

5) Realty Income (O), 4.70% yield. A stable REIT with tenants like FedEx and BJ’s Wholesale Club.

Photo by Svilen001.

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What is Facebook’s IPO date?

Our best guess is you can look for your opportunity to buy stock in Facebook around…

Now that Facebook has filed an S-1 with the Securities and Exchange Commission, the company’s actual IPO date is drawing near. It’s unclear when shares in the company will start trading, but we can make a rough guess.

Facebook filed its 200-page Form S-1 on February 1, 2012. The SEC, NASD and state securities organizations must approve the S-1 before Facebook shares can start trading. That process takes anywhere from 20 to 60 days. That means Facebook shares could start trading as early as the end of February. In all likelihood, though, it will probably take longer for Facebook’s S-1 to get approved.

Facebook’s S-1 weighs in at 14MB and 200 pages. It’s also been subject to close public scrutiny. The SEC will want to ensure everything’s correct, and that means they’ll probably take closer to 60 days to approve the filing. If they find any omissions or need clarifications, they could require Facebook to file an amended S-1, which could further delay the IPO process.

Our best guess is you can look for your opportunity to buy stock in Facebook around the end of March or beginning of April 2012.

Photo by Dreamtwist.

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Why do REITs have such high dividend yields?

So long as you understand the unique risks, investing in REITs can be very profitable. Let’s take a look at why REITs have such high dividend rates and then look at the Top 5 REITs with the highest dividends.

High dividend yields equate to high risk, and Real Estate Investment Trusts (REITs) have some of the highest yields on stock exchanges right now. That means they’re among the riskiest of investments right now, too. To understand why their yields are so high, you first need to understand how REITs work.

REITs make money by borrowing gobs of cash at low interest rates, then using those greenbacks to buy higher-yielding mortgage securities (things like rental properties, derivatives or office space). It’s similar to how banks work. They borrow cash from the Federal Reserve at near-zero percent interest rates, then loan that money out to home buyers and small businesses at rates starting around 3.5 percent.

Banks make stable loans. REITs make riskier bets, and that means they stand to make more money. Once the interest rates start to rise, though (and the Fed has signaled that could start as early as 2014), the profitability of REITs goes down (sometimes dangerously fast).

That’s why investors have been wary of REITs. The historically low interest rates set by the Fed can’t last. REIT investors know that, so they diligently watch interest rates while holding shares in a REIT.

Before investing in REITs, there’s one other factor you need to understand: dividends from REITs are subject to higher taxes than normal dividends. This happens because REITs enjoy special tax benefits. By paying out 90 percent of their income as dividends, the REIT itself doesn’t have to pay taxes.

So long as you understand the unique risks, investing in REITs can be very profitable. Let’s take a quick look at the Top 5 highest dividend-yielding REITs:

1) Invesco Mortgage Capital Inc. (NYSE:IVR). Yield: 21.45%. Residential and commercial mortgage-backed securities.

2) American Capital Agency Corp. (NASDAQ:AGNC). Yield: 18.86%. Residential mortgage pass-through securities.

3) Resource Capital Corp. (NYSE:RSO). Yield: 16.72%. Invests in real estate debt through a series of subsidiaries.

4) CYS Investments Inc. (NYSE:CYS). Yield: 14.84%. Residential mortgage pass-through securities.

5) Chimera Investment Corporation (NYSE:CIM). Yield: 14.10%. Residential and commercial mortgage-backed securities.

Photo by Gerard79.

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How to get rich: Lessons from Africa

There’s this tendency to believe we need a revolutionary idea to get rich. The fact is, most of the world’s millionaires (and billionaires) got rich off of industries we probably thumb our noses at.

This post is part of our long-running “How to get rich” series. Click see all the posts.

There’s this tendency to believe we need a revolutionary idea in order to get rich. The fact is, most of the world’s millionaires (and billionaires) got rich off of industries we probably thumb our noses at: fertilizer companies, trailer parks, and lawncare franchises work just as well as founding the next Zynga, Twitter or Facebook.

A recent article in Forbes drove home this fact when they profiled the Top 3 richest people in Africa. All three of them made their cash off industrial businesses:

1) Aliko Dangote, $10.1 billion in market cap in his cement company Dangote Cement. Also mills flour and refines sugar.

2) Nicky Oppenheimer, $6.5 billion from selling his stake in diamond company DeBeers. Also owns 2 percent of mining giant Anglo American.

3) Nassef Sawiris, $4.75 billion as head of Egypt’s biggest public company, Orascom Construction. Also building a fertilizer plant in Brazil.

There’s no shame in founding a company that does the sort of work no one else wants to do. Commercial cleaning franchises, for instance, often make Entrepreneur magazine’s list of the top franchising companies in the country. Copying an idea that’s proven to work and steadily growing your earnings year after year is the surest way to getting rich. And starting a franchise (rather than going off on your own) should help you avoid the pitfalls most rookies make (see our list of the Top Five Cheap Franchises to start $10,000 or less for some ideas).

One other thing to note: the richest men in Africa (and I can say men because there are no women who made the “top 40” list) are old. They have an average age of 61, according to Forbes. That’s another aspect to getting rich that a lot of people don’t want to admit: it takes a hell of a lot of work and a hell of a lot of time.

One of my high school friends recently left his cozy corporate job to start a software company. It’s doing well, but he’s hardly sleeping. I get emails from his at 4 a.m. He thinks he’s getting an ulcer and his back hurts from “sitting all the time.”

Some weeks, he bills his clients more than 100 hours. That’s 14 hours a day, seven days a week. I ask him why he’s doing it, and he says “I have a plan. I’m going to trash my body for six months and make this work.”

“What if it doesn’t?” I ask.

“Then, I’m going to close down the business and go back to corporate America.”

At least, he’s trying, and that’s what separates him from almost everyone else I know. He’s willing to put in the hours that it takes to reach a goal – even at the expense of a social life and perhaps his health! It’s a tough trade-off, and it’s probably a pretty extreme example, but I think it’s the key to making lots of money.

It’s hard work, and it’s doing the things no one else can or wants to do.

Photo Credit: Nbauer.

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