Robert Kiyosaki on Why Gold and Silver Aren't Good investment

Why Gold and Silver Aren't Good Investments

Conspiracy of the Rich

The 8 New Rules of Money

by Robert Kiyosaki

Online Exclusive Update - #87
  May 16, 2011

Why Gold and Silver Aren’t Good Investments

For years, I’ve advised people to buy gold and silver, especially up to the year 2010. As you may know, gold was approximately $275 an ounce in 2000, and by 2010, gold was over $1,300 an ounce. Silver has been the better of the two precious metals, starting at below $3.50 an ounce a few years ago and reaching a high of approximately $40 this year.

Yet, gold and silver aren’t the best investments for the following reasons.

Difficult to leverage

With real estate, my bankers will loan me 70 to 80 percent of the purchase price. Even though gold and silver has gone up, few bankers will lend you money to invest in gold and silver.

A banker may lend you money for gold and silver you have in your possession, pledging it as collateral against your loan, but most will balk at the idea of borrowing money to speculate in gold and silver.

No cash flow

Gold and silver don’t produce cash flow…for most people. If you’re sophisticated, there are ways to have your gold and silver produce cash flow, but if you know how to do that, you don’t need gold and silver.

Taxes are high

As you know, there are two types of income from investments: capital gains and cash flow. Most novices invest for capital gains. They hope and pray their investment goes up in price. For example, they hope their stocks go up in price or their home goes up in value.

Cash flow investors invest for income on the asset. For example, they invest for cash flow from their real estate or business, dividends from their stocks, or interest from their savings or bonds.

Taxes for real estate investments are the best. For example, an investor can pay zero in taxes for capital gains and for cash flow. Taxes on capital gains for stocks are 15 percent for long-term gains and 30 percent for short-term gains (investments held for less than a year). This is one reason I prefer real estate instead stocks. I’d rather not pay taxes to the government.

The worst taxes are on 401k plans and savings. The income from these investment entities are taxed at the highest tax rate, ordinary income, the same tax rate for employees.

Taxes for capital gains on silver and gold are 28 percent, which is higher than 15 percent on stocks and zero percent for real estate.

Once again, the reasons why silver and gold aren’t the best investments are:

1. Difficult to leverage
2. No cash flow
3. Taxes are high

On the flip side, gold and silver is an easy investment, especially when the Fed is printing trillions of dollars.

But, if the Fed stops printing trillions of dollars, gold and silver may become the next price bubble to crash…but I doubt that will happen.

If the Fed stops printing money, there will be a giant crash causing a tsunami of pain and destruction. Cash will become king…and so will a gun.

I still believe your best investment is taking courses and investing in your financial education. Regardless if we crash or go into hyperinflation, those with a sound financial education will be better off than those who are counting on the government to solve this financial crisis.

Thank you for supporting COR.

Robert Kiyosaki

Soros dumps gold while Paulson holds on

Soros dumps gold while Paulson holds on

NEW YORK: Billionaire financier George Soros, who called gold 'the ultimate bubble', dumped almost his entire US$800 million (S$1 billion) stake in bullion in the first quarter, well before a commodities slump blamed partly on reports that he was liquidating his holdings.

Famed gold bull John Paulson held his ground, but Mr Soros was joined in the retreat by other big names, including Mr Eric Mindich and Mr Paul Touradji, according to filings with the US Securities and Exchange Commission that provide the best insight into where hedge funds are placing their bets.

Gold prices barely reacted to the news, with spot gold up 0.3 per cent at US$1,494.29 an ounce by 0327 GMT yesterday. Rising inflation worries and a debt crisis in the euro zone should help prevent any sell-off in the precious metal, analysts said.

Mr Soros had cut his holdings in the SPDR Gold Trust to just US$6.9 million by the end of the first quarter, from US$655 million last December, becoming the most high-profile investor to turn his back on one of the market's best-performing assets.

He also liquidated a 5 million share stake in the iShares Gold Trust, the filings show.

Gold rose for a 10th consecutive quarter in the three months to March, hitting record highs above US$1,400 an ounce, buoyed by political turmoil in the Middle East and North Africa and lingering worries about indebted European countries.

The gains accelerated in April, but peaked at the start of this month, reaching a record US$1,575 an ounce on May 2.

Prices have since fallen over 5 per cent amid the biggest commodities slump since late 2008, a move partly triggered by a Wall Street Journal report that Mr Soros' US$28 billion fund was selling precious metals - and fuelling fears that other big funds were also seeing a peak.

But Mr Paulson kept his 31.5 million shares, or US$4.4 billion stake, in the SPDR fund, remaining the biggest shareholder of the world's largest gold- backed exchange traded fund for the quarter.

REUTERS

Gold and Silver may lose their shine

Source : The ST, Gabriel Chen

Gold hit a record of US$1,577.40 an ounce earlier this month.

The question for investors now is: Where do gold prices go from here?

There are two opposing views on this. One is that gold's 10-year rally is overdue for a major price correction. The other is that with inflation on the rise, there is a lot of potential for more gains.

Earlier this month, silver - gold's less expensive cousin - also surged to US$49.51 an ounce, near its all-time intraday record of US$50.35 set in January 1980.

Gold and silver are priced in US dollars, so a falling greenback makes them even more attractive to buyers using foreign currencies.

But prices of both metals, as well as other commodities, have been weaker of late due to renewed concerns about global growth.

Still, the bulls believe gold can go much higher, with Standard Chartered reckoning the superbull case is US$4,869 by 2020.

Gold bugs see gold as a store of value, as record-low interest rates erode returns on currencies like the US dollar.

Gold has also benefited from strong jewellery demand from China and India, reduced net central bank gold sales, and a growing appetite for gold exchange-traded funds.

But a growing number of commentators are now cautioning investors to be careful.

While it is hard to predict when the major correction will take place, it will happen, they say. And when it does, gold prices could turn sharply down.

'As the price of gold skyrockets, some are touting gold to be the next bubble,' says Mr Teyu Che Chern, Phillip Futures' chief executive.

DBS Private Bank chief investment officer Lim Say Boon says gold is expensive relative to other assets.

Barclays Wealth Asia strategist Manpreet Gill adds: 'Gold and silver are assets we do not like on a long-term basis.'

While gold has done well over the past decade, it has not always been the case in the 1980s and 1990s, says Dr Shane Oliver, AMP Capital Investors' head of investment strategy.

Gold's spike above US$800 lasted only a couple of days in January 1980, and by the end of the year, it had fallen precariously to less than US$600.

As gold shot up, plenty of new investors were buying, with people getting in on the boom at above US$600.

What took the air out of the previous gold bull market was action by then US Federal Reserve chairman Paul Volcker to raise interest rates to the high teens to tame double-digit inflation.

After 20 years of mostly falling prices, gold languished at US$250 by August 1999.

US interest rates are still an important consideration today. Rising rates may take the wind out of the gold rally and increase the opportunity costs of holding gold.

'With high opportunity costs, gold and silver demand would drop sharply and both metals would trade considerably lower,' says Mr Dominic Schnider, UBS Wealth Management's head of commodity research.

In fact, UBS expects a sizeable retreat in the price of silver towards US$34 an ounce over the next 12 months.

Given the risks that gold and silver may underperform, experts are telling investors not to be overly exposed.

JPMorgan Private Bank's head of South-east Asia investors Nathan Slack recommends a 1 to 3 per cent allocation to gold for clients with moderate risk tolerance and well-diversified portfolios.

Mr Norman Villamin, RBS Coutts' head of investment strategy for Asia, recommends a 3 to 5 per cent allocation to gold for 'more balanced' portfolios.

One way to get exposure is via United Overseas Bank, which offers gold and silver savings accounts. With a passbook, you can trade gold and silver at prevailing market prices.

The ups and downs of commodity prices

Source: The Straits Times, Goh Eng Yeow

NO WONDER investors were jumpy: Almost a year to the day after Wall Street crashed by nearly 1,000 points in a matter of minutes, crude oil prices plunged almost 10 per cent - the biggest one-day fall in history - last Thursday.

Like the flash crash last year, the rout was initially greeted with trepidation but as crude stabilised the following day, there was renewed confidence that the two-year market rally was still intact. Business as usual, in other words.

But it is worth examining the reasons behind the worst sell-off in crude since the collapse of US investment bank Lehman Brothers in September 2008 sent prices plunging 75 per cent in three months.

After all, as the Financial Times observed, the rout not only saw billions of dollars go down the drain, it probably also buried some funds and individual investors in a blizzard of margin calls last week.

Recent history is replete with the woes inflicted by wild swings in oil prices. Take China Aviation Oil, which almost collapsed in 2004 after losing US$550 million (S$682 million) dabbling in oil futures.

One interesting factor this time is that the oil crash came in the wake of a similar rout in silver, which fell almost 20 per cent last week after almost tripling in price over the past seven months to a record US$49 an ounce.

For investors chasing higher yield in the low-interest rate, high-inflation environment, the commodities market has become a favoured playground as they try to cash in on demand for food, metals and energy sources such as coal and crude oil.

So while there is no correlation between any of the commodities where usage is concerned, all have been moving in lock-step where prices are concerned.

A favourite strategy for traders is to 'long' crude oil which has risen by up to 24 per cent since January and 'short' the US dollar, down 7.7 per cent against other major currencies over the same period.

What they failed to reckon with is a perfect storm: The US dollar strengthened in the past week while demand for oil looks to be softening in big emerging economies like China as they take further measures to fight inflation.

There are also jitters in the commodities market as the quantitative easing programme - a US$600 billion scheme by the US central bank to expand the money supply by buying US government bonds - draws to a close next month.

This will force hedge funds and other sophisticated investors to decide on whether to cash in on the gains they have made in commodities or risk losing it all like in 2008 when oil prices plunged 80 per cent in six months after hitting a record US$145 a barrel in July that year.

The four hikes in margin requirements on silver made by the Chicago Mercantile Exchange - the world's largest commodities exchange - in the past two weeks also helped prick the commodities bubble.

In some ways, its actions were similar to those taken by brokerages in Singapore a few years ago when they demanded upfront cash payment from clients on keenly sought penny stocks which had become too hot for them to handle.

Still, it is unclear if the hike in margins will dampen the speculative fervour that has built up in the commodities market. It may simply clear out weak players who are unable to hold their positions, leaving the field open to those with deep enough pockets to step in and drive prices still higher.

The sharp drop in crude prices may also reflect the unease among big oil traders over efforts by the US government to root out what it believes to be an illegal manipulation of the energy market in the wake of surging pump prices.

But US hedge fund manager Jeremy Grantham, whose asset management firm GMO manages US$107 billion in assets, noted in a recent newsletter that high commodities prices may be here to stay.

'The rise in population, the tenfold increase in wealth in developed countries and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertiliser, available land and water,' he said.

As huge economies like China and India are consuming more of every raw material from crude oil to iron ore, hopes of a peak in prices may be futile.

'The 102 years to 2002 saw almost each individual commodity - both metals and agricultural - hit all-time lows. But since 2002, we have the most remarkable price rise, in real terms, ever recorded,' he said.

As such, Mr Grantham believes that speculation plays only a small role in driving up the prices of commodities such as crude oil.

Even if China's economy stumbles and the weather turns out to be better than expected, generating a bumper harvest for wheat and other crops, any drop in commodities prices would only be temporary.

In the long run, the more important issue is the increasing scarcity of commodities and the upsurge in demand.

For investors, the road ahead may be a short boom-and-bust cycle occurring with distressing regularity.

Silver and Gold ETF Bounce after Epic Meltdown

 

By Trang Ho

Mon., May 09, 2011 5:33 PM ET

Precious metals ETFs recovered some losses Monday after an avalanche of selling last week triggered by extremely oversold conditions and increased margin requirements in the futures markets. IShares Silver Trust(SLV) jumped 7.25% to 36.98 in heavy volume but didn’t manage to recover its key 10-week moving average. Each share roughly represents an ounce of silver. It cascaded 26.5% last week, booking its largest one-week drop since it started trading five years ago.   SPDR Gold Shares(GLD) climbed 1.4% to 147.38. Each share is worth 1/10th of an ounce of the yellow metal. Despite a sharp 4.6% selloff last week — its largest in two years — it held above its 10-week moving average, which shows the longer term uptrend remains in tact. “In the medium term, we anticipate prices settling lower, in the $28 to $30 an ounce range as companies producing silver as a by-product of gold or base-metal mining add to downward pressure by selling silver forward to lock in current high-price levels,” said Tom Winmill, manager of Midas Fund (MIDSX), which specializes in natural resources. Longer term, silver will probably trade at a 10% to 20% premium to its average marginal total cost of production, which is about $15 an ounce, he added. Silver futures rose back above $37 an ounce on Monday. The selloff in SLV was a normal correction after nearly doubling off its February low and gold still looks bullish, says Victor Sperandeo, a.k.a. Trader Vic, a renowned gold trader. Corrections typically shave off a third to two-thirds of the prior uptrend. “So nothing has changed and the uptrend continues,” Sperandeo said. “Be a buyer into weakness is my strong view.” Weak economic data such as 1.8% Q1 GDP growth and unemployment rising to 9% in April suggest the Fed will have to add more stimulus via a third round of quantitative easing, which will fuel inflation, he added. Most economists don’t expect a QE3, but don’t see the Fed tightening any time soon, unlike most other major central banks.

Commodities: The Party's Not Over

U.S. Global Investors

05/09/11 - 04:59 PM EDT

By Frank Holmes

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
 
NEW YORK (TheStreet) -- The prices for many commodities suffered the worst week in recent memory last week. Oil prices dipped below $100 per barrel, gold fell below $1,500 an ounce and silver gave back much of the past month's gains by falling to the $35 an ounce level. The prices for other commodities such as sugar, tin, nickel, aluminum, lead and copper also pulled back.
 
Is this the end? Has the great bull run for commodities come to an end?
In our opinion, not likely. First of all, we wrote on April 24 that commodity prices were due for a pullback. Specifically, we pointed out that silver had wandered into "extreme" territory, which exacerbated the reversal we saw that week.
On May 3 (before we saw the largest declines), BCA Research wrote "one look at the hyperbolic rise in silver prices should be sufficient to convince even a hardcore commodity bull that things are getting frothy."
 
In fact, the silver trade had gotten so far ahead of itself, the iShares Silver Trust ETF (SLV)was "the most highly traded security on the planet," according to our friend Tom Lydon over at ETF Trends. Last week's selloff was less of an end to the bull market and more a function of "stampeding speculators" (to borrow a line from Sarah Turner at Marketwatch) rushing for the exits.
 
But short-term speculators aren't the only factor; last week's strength in the U.S. dollar was just as much a facilitator of the price declines. The U.S. dollar found additional strength on Thursday after Jean-Claude Trichet, president of the European Central Bank (ECB), said the ECB would not raise rates until after June. By week's end, the U.S. dollar was up 2.5% for the week, a pretty big move.
 
In addition, we entered the month of May, which has historically proven to be a weak and volatile period for commodities. With the Federal Reserve set to wind down its quantitative easing (QE2) program by the end of next month, it's possible we could continue to see volatility for a little while.
 
Despite the selloff, commodities were still the year's top performing asset class as of Thursday. You can see from the chart that the year-to-date return for commodities has far outpaced the return for foreign exchange, bonds and emerging markets.
 

 
Looking out on the horizon, very little has changed for the long-term bull case for commodities. The U.S. is still struggling to come up with a feasible solution to its multi-trillion dollar debt problem. Emerging markets are still seeing incremental increases in demand for nearly all commodities. And, the reserves for many commodities are still struggling to keep pace with this demand.
 
Essentially, what happened last week was more of a "technical correction" than a fundamental shift in the long-term dynamics for commodities and we've already begun this week with big gains for silver and crude oil prices.
 
The party's not over for commodities, so don't turn out the lights just yet. While it's impossible to predict the future, we think in a month or two, investors may look back and see this downdraft as a good buying opportunity.

Is Silver and Gold's Correction Finished?

Gold, Silver Prices Recover After Carnage. By Alix Steel (The Street)

05/09/11 - 02:45 PM EDT

NEW YORK (TheStreet ) -- Gold and silver prices recovered Monday after a painful selloff last week as bargain hunters stepped in.
 
Gold for June delivery added $11.86 to settle at $1,503.20 at the Comex division of the New York Mercantile Exchange after falling 4.8% in a week. The gold price Monday has traded as high as $1,512 and as low as $1,489. The spot gold price was rising $13.10, according to Kitco's gold index.
 
Silver prices rose $1.82 to close at $37.11 an ounce after plummeting 27% last week.

The consensus seems to be that silver has more downside now than gold. Barclays Capital thinks that silver will find support in the low $30s as "retail demand" takes the lead but that "longer-term investor interest in gold remains robust." Barclays cites Asian demand as a key factor for higher gold prices.


Goldman Sachs seems to be in agreement, issuing a 12-month silver price target of $28.20 with silver slipping as low as $24.70 in the next three months, while gold's one-year target is $1,690 an ounce after falling to a three-month low of $1,480.


"There is overhead resistance in silver," said David Morgan, founder of silver-Investor.com, "the ratio will favor gold" for a while. The ratio refers to how many ounces of silver it takes to buy an ounce of gold. The ratio fell to as low as 31 when silver hit a recent intraday high of $49.82, and has now risen to 40.
"We're seeing gold outperform silver on a ratio basis ... I'm not that eager to get back into the market," Morgan said.
 
Morgan thinks the ratio could move even higher, as much as 50:1, which implied more downside from the $36 level, but that long term he is sticking by his ratio of 16:1.
 
"The fundamental fact remains that you cannot print wealth, and as long as Federal Reserve Chairman Ben Bernanke and other central bankers in the world try to print wealth you're going to have more and more upside for the metals," he said.
 
The Commodity Futures Trading Commission's bank participation report for May shows that gold long positions fell 7% as of May 1 compared to April 1, but short positions stayed relatively the same, whereas silver's long position rose 25% and short positions fell 18%.

"I think that as we neared the expiration of the May contract of silver, we saw more aggressive buying in the silver versus the gold," says Brian Booth, senior market strategist at Lind-Waldock. "I think traders had $50 silver in mind for a target ahead of the May expiration."
 
Booth thinks that gold could be headed for some margin hikes of its own despite the fact that the market is more liquid and historically less volatile than silver.
 
Gold and silver breathed a sigh of relief Monday as the U.S. dollar index was volatile, currently falling slightly. The currency rallied more than 3% last week as the euro tanked on rumors that Greece might leave the European Union and on speculation that the European Central Bank won't raise rates at its July meeting, which had been widely expected. The lack of consistent and aggressive rate hikes will leave negative real interest rates in the EU for longer than anticipated, now at a negative 1.55%.
 
Further helping gold and silver Monday was Standard & Poor's downgrade of long and short term Greek debt to B and C, respectively. Although a "default" might be off the table, more creative "defaults" like extending current bond maturity, meaning Greece can take longer to pay back debt, are being considered. All of which helps gold and silver as safe haven assets.
 
However, it doesn't mean the recent correction in gold and silver is finished. James Moore, research analyst at FastMarkets, thinks that volatility could remain high with participants protecting themselves against more long selling.
 
"While the corrections are likely to entice fresh demand from physical and investment sources, buyers may hold off until some price stability emerges with the metals still vulnerable to downside pressure," Moore said.

Gold mining stocks were moving higher. Yamana Gold(KGC) was adding 1.03% to $11.92 while Freeport McMoRan Copper & Gold(FCX) was up 2.41% to $51.38. Other gold stocks, New Gold(NGD) and Gold Fields(GFI) were trading at $9.98 and $16.05, respectively.

Alix Steel Interview with Jim Rogers

by Alix Steel

05/09/11 - 03:50 PM EDT

NEW YORK (TheStreet ) - Jim Rogers, financial commentator, author and contrarian investor, loves commodities, but after the recent commodity carnage, does he still?
 
Gold prices fell 4.2% last week, silver prices plummeted 27%, and oil tanked 14.7%. As silver was smacked with an 85% increase in margin requirements in two weeks, Osama Bin Laden was killed removing some risk premium from the markets, over-crowded commodity trades shook out and the U.S. dollar index rallied, commodities took a nose dive.
 
The SPDR Gold Shares(GLD) shed almost 25 tons in 5 days while iShares Silver Trust(SLV) dumped 767 tons.
 
TheStreet sat down in an interview with Rogers to see if the recent correction changed his view on the bull market in commodities.
 
I wanted to start off with last week's commodity carnage, what does that tell you about the commodity trade?
Rogers: Well, not much if you ask me. Markets correct all the time. Silver went down a great deal but if you raise margin requirements 150%-200% you would expect there's something to collapse. It's good for the market as far as I'm concerned. Silver especially needed a set back and a consolidation. I'm delighted to see everything.

 
So this wasn't one current bubble that then burst at that time?
Rogers: I hardly see how silver could be a bubble when, even as its top, is still below it's all time high. That's not much of a bubble. A bubble is when things are screaming up every day and they go to new highs, two to three times their old highs. We'll have a bubble, we'll have a bubble in commodities, we're not there yet.
 
What price do you think silver will hit that would make it a bubble?
Rogers: Well, it depends on the timing. If it goes to $150 this year, all other things being equal, then I'd say you better sell your silver. If it goes to $150 in 10 years then I would say that's a normal progression up and that's the way things work. But if the U.S. dollar suddenly turns into confetti then you better hold your silver at $200. So it depends on the circumstances and the timing more than anything else.
 
Now talking to a lot of technical traders when they looked at the silver chart, say over the last year, they saw that parabolic rise which made them really think it was a bubble. Also, to your point, we have talked about this before, when you hear people talking on the street about say pork bellies that means we are in a bubble. I heard stories of people talking on the street on their cell phones talking about silver last week hoping it would go higher so they could sell.
Rogers: Oh, I was hoping it would go down so I could buy ...I was on some show talking about how this parabolic bubble better stop soon. But Ms. Steel, how many people do you know who actually own silver? I suspect you don't know man y people at all. I spoke recently at a conference [with] 400 big time money managers around the world.
The moderator said how many of you have ever owned gold? Seventy six percent of them had never owned gold much less silver or soybeans or cotton, so I suspect you don't know anybody who owns silver. Someday you'll know a lot of people who own silver, everybody you know. That will be a bubble, that's the time to sell.
 
So was silver's parabolic rally we saw then more of a trader bubble?
Rogers: I'm not sure I would call it parabolic, I would certainly call it a spike, it didn't quite reach parabolic status in my view, but it certainly was a gigantic crazy spike. When something goes up 25%-30% in a month, that's something to worry about a great deal. I don't know what caused it maybe it was short covering, maybe it was rumors. I have no idea. I know that 25% in a month is dangerous.

 

So silver fell 27% last week, was it enough for you to want to buy more?
Rogers: Well, I'm too lazy, I'm doing other things right now, but I hope at some time in the next month or two if it goes down or stays down then I will get the energy to go around and buy some more silver, yes. Or maybe it will go to $25, I don't know
 
But you didn't sell anything?
Rogers: No, no, no I have not sold any commodities. I protect myself by being short ... in other things. I am nearly always short something. I'm nearly always long something, fortunately my shorts went down too last week.
 
So what are you short versus long?
Rogers: Well, I'm short emerging markets and I'm short American technology stocks cause those are two areas of the world stock markets that have been very over-exploited in the past two to three years. They're not great bubbles, they're not great shorts, but they're better shorts than nothing.
 
Then what are you long? Commodities then?
Rogers: I'm long commodities, mainly its commodities and currencies.
 
Now you've been saying that there is no oil and that's why oil prices are going up. What did you specifically mean by that?
Rogers:Well, there have been no new elephant discoveries in over 40 years. All the great oil fields in the world are in decline now and unless we find a lot of oil quickly then we're not going to have any oil at any price. The International Energy Agency is going around saying "look, the world is running out of known reserves at 6% a year."
Well, say its 4% a year, say they're wrong. I mean in 25 years, Ms. Steel, we won't have any oil at any price unless someone does something very quickly that's all I mean, there's no oil, there's no new oil.
 
It just seems like if that's the case then natural gas prices should be through the roof in preparation of a lack of oil?
Rogers: Well, there is a short term glut of natural gas, but you're exactly right, people are going to have to use other forms of energy and if I were looking at energy markets right now I would start by looking at natural gas cause its way down and oil is way up.
 
So how high will oil go on this supply issue?
Rogers: Oh, if I told you how high the price of oil would go over the next decade, you'd stop talking to me, you wouldn't believe me. "He's finally lost it, he's gone over the deep end."
Do the arithmetic. If reserves are going to continue to climb at 4%-5%-6% a year, in 10 years there is going to be very little oil left. Now we would have brought in alternate sources such as natural gas and other things but we are still going to be in a bad bind. Prices are going to be very high.
Eventually prices will go so high that people will probably start finding new oil ... if oil goes to $200, they'll drill on the White House lawn, $300 drill at Buckingham Palace. Hopefully, someday, we'll find more oil, or more sources of energy and people will cut back at the same time.
 
So natural gas would be the one you'd focus on?
Rogers: I would start by looking at natural gas or maybe uranium. Uranium has been pounded down recently for obvious reasons. It will probably have to sit around on the bottom for a while but that's another place that's very depressed. And we are going to have to have nuclear power whether we like it or not.
 
But say wind and solar don't make it on your list?
Rogers: No, of course it does ... but wind and solar are not economically competitive at these prices. Now if prices go higher and higher of course, they'll be very competitive and, of course, governments love wind and solar, so they will subsidize. If you can find competent people in that business, you'll make a fortune.
 
I know I've been harping on gold, silver, and oil but what is your favorite commodity? The one you think that has the most upside long term?
Rogers: If I were looking for new commodities now I would start by looking at the things that are depressed. Natural gas, you picked an obvious place to start, I would look at things like rice, rice is very depressed ... silver's cheaper than gold on a historic basis.
I would start looking at those places. I always like to start with the things that are the most depressed, doesn't mean I'll buy them, doesn't mean that they should be even looked at but that's where I start. I don't like to start with the things that are making new highs. By the way, there are plenty of great investors who do invest that way, they are momentum players. They jump in and get on a moving train, I'm scared to death to get on a moving train and if I do I always get hurt.

Video Jim Rogers on Commodity Prices

Source: The Street

High Commodity Prices Are Here To Stay

Posted: May 09, 2011 15:19 PM by Sham Gad

Despite the sudden plunge in commodity prices over the last few days, the reality is that consumers are probably going to have to deal with them for the foreseeable future. Oil prices have dropped by more than 10% in the past week while silver has plunged more than 20% in roughly the same amount of time. Those were the headline declines. In fact, all commodities including grains and metals have retreated in the most recent commodity sell off. However, while the dip has proved that prices can't go up forever, most indicators are pointing to high prices in commodities for a long time to come. Here we look at why this is and what you should be investing in now.

A Natural Correction in CommoditiesIt's a natural fact of life that prices cannot go up forever; in the end, prices naturally revert back to the mean. Commodity prices have been experiencing a huge rally unlike any other asset class over the past year. It's only natural that the faster something goes up, the greater the chance of a sharp correction. How far commodity price will pull back is not a question I am qualified to answer as I can't predict human behavior in the short run, but today's reality seems to support higher commodity prices.

Earlier this week, Kraft (NYSE:KFT) reported that its sales grew by just over 4% quarter over quarter. The vast bulk of that increase was due to price increases that the company implemented to deal with rising commodity costs. In addition, Kraft continues to face significant costs pressures for the rest of 2011. As the second-largest food company in the world, Kraft is in a good positions to accurately assess the state of commodity prices.

Is the commodity bubble burst ?

And pop goes the commodity bubble

NEW YORK: On April 25, half a dozen officials from CME Group, which runs many of the United States' commodities exchanges, met via videophone to discuss the eye-popping rise in the price of silver, which had doubled in just six months to about US$47 a troy ounce.

They did not realise it, but they were about to take the first step towards popping a bubble in global commodity prices.

Worried about the speculative run-up and the increased volatility of the silver market, the officials concluded that it was time to raise the amount of money that buyers and sellers had to put down as collateral to guarantee their trades. The first increase in so-called margin requirements took hold the next day, effectively making it more expensive for speculators and other kinds of traders to play in the market.

But the price kept going up, reaching nearly US$50 a troy ounce on April 28. Over the next week or so, the exchange decided to raise collateral requirements even higher, in four more steps that would kick in every couple of days.

Silver prices finally halted their ascent - and went into freefall.

Last Thursday, the rout spread to a wide range of commodities, including coffee, cotton and oil, as investors looked at silver's plunge as well as global interest rate trends and other economic news, and concluded that the year-long boom in commodity prices was ending.

'The tremors felt in silver started reverberating throughout the entire commodity patch,' said Mr Richard Feltes, vice-president of research of RJ O'Brien, a large commodities broker. Silver ended the week down 27 per cent. Crude oil was down 15 per cent, and most other commodities also fell significantly.

The futures exchanges have been struggling for months to cope with the challenges posed by rapid price increases and head-snapping volatility in many commodities. Those who rely on the commodity exchanges to hedge risks in their businesses, like farmers, foodmakers and mining companies, have complained that increased betting by speculators has made it much more difficult for them to use the markets.

Besides changing margin requirements, exchanges are taking other steps in reaction to the volatility. The Intercontinental Exchange, for example, is using computer programs to make the markets more efficient by better matching buy and sell orders in sugar and other commodities. It is also looking at strengthening various types of circuit breakers to halt or slow trading during volatile periods.

Some players in the markets say the exchanges use margin requirements to actively push down prices. But the exchanges say they are not price-setting tools.

Silver is not the only market where margin requirements were increased recently. CME also boosted margin requirements on corn, crude oil, ethanol and other products. The Intercontinental Exchange increased cocoa margins in February, March and April, and cotton margins went up twice in February. The Brent crude oil contract, the benchmark oil traded in London, has seen margins increase eight times this year.

Even though many policymakers in Washington, from President Barack Obama on down, have complained that run-ups in commodity prices may have gone too far, there was no direct nudging from regulators to raise the silver margins, the CME said.

But regulators will soon have the power to lay down their own rules for trading in commodities and derivatives. The Dodd-Frank Act, passed after the 2008 financial crisis, gave the Commodity Futures Trading Commission the authority to alter margin rules and set position limits in order to combat excessive speculation and manipulation in the markets.

The commission has proposed rules on position limits, which would restrict the maximum number of contracts any single investor or firm could control. The agency has yet to propose any rules on margins, preferring to concentrate instead on dozens of other new financial rules it must set under the Dodd-Frank legislation. But the agency has come under pressure from members of Congress to act on margin requirements more quickly.

Ultimately, the recent margin increases in silver and some other commodities may have been more of a psychological signal that the long bull market in commodities had run its course than a significant financial constraint for most speculators.

Source: NEW YORK TIMES

Silver Silver - Price corrected sharply

Recently, the price of Silver has plunged significantly, despite the fact that US$ continues to weaken and all expectation is that silver price will continue to go up up and up. People are rushing in to buy silver as a hedge against inflation.

But the price came crashing down. It goes to show that nothing is certain in investments, silver (SLV) price dived more than 20% in just a few days. It took months for the price to inch up to close to US$50 before the dive. All the big players are playing games and make tons of money from it. So small players like us need to be very careful when we invest so that we dont lose our hard earned money.

George Soros' hedge fund may be selling their big Silver positions in the last few days.
Read this article link about George Soros and Other Prominent Hedgies Selling Silver?