Global X announced today the launch of the Permanent ETF (PERM), a new fund that will offer one stop exposure to a number of core asset classes. The new ETF will be linked to the Solactive Permanent Index, a benchmark that includes three major asset classes: stocks, Treasuries, and precious metals. Each of those broad categories includes multiple layers; the equity component includes both domestic and international stocks, while the Treasuries allocation is split evenly between long-term and short-term securities. The precious metals allocation includes both gold and silver.

At each rebalance, the underlying index will allocate 25% to each of stocks, short-term Treasuries, long-term Treasuries, and precious metals. The rough breakdown by asset class for PERM will be as follows:

AssetWeight - Physical Gold – 20%, Physical Silver – 5%, Long-Term Treasuries – 25%, Short-Term Treasuries – 25%, Large Cap U.S. Stocks – 9%, Small Cap U.S. Stocks – 3%, International Stocks – 3%, Natural Resources Equities – 5%, Real Estate Stocks – 5%.

PERM’s portfolio will consist of both exchange-traded products and individual holdings. Gold and silver are represented in the underlying index by ETPs offered by ETF Securities, while the bond allocation consists of individual Treasuries. In total, the underlying index has about 87 individual components.

Basics Of Permanent Investing
The concept of the “permanent” asset allocation strategy was highlighted in a 1998 book titled Fail-Safe Investing that was authored by Harry Browne. The strategy is based on the idea that the economy is always in one of four states: prosperity, inflation, recession, depression. Regardless of the environment, one component of the portfolio should be expected to deliver strong results–hopefully sufficient to offset any underperformance in the remaining allocations.

The Permanent Portfolio has been in existence in a mutual fund wrapper for nearly 30 years; PRPFX debuted in late 1982. Since then, that fund has accumulated almost $17 billion in assets according to Morningstar–which perhaps makes it surprising that PERM is the first exchange-traded product to implement this technique. The permanent mutual fund has delivered annual returns of about 5.9% annually (after taxes on distributions and sale of portfolio shares) since its launch. Over the last ten years the mutual fund has gained about 9.6% annually, compared to a gain of less than 3% per annum for the S&P 500.

Mutual Fund vs. ETF
It should be noted that the 30-year old mutual fund and the new ETF from Global X are not identical; PRPFX uses gold coins and gold bullion, while PERM uses physically-backed gold and silver ETFs to achieve its precious metals exposure. Moreover, the aforementioned mutual fund includes positions about 10% in Swiss Franc assets and a higher allocation (15%) to natural resource stocks.

PERM’s expense ratio of just 0.48% is quite a bit lower than the 0.78% charged by PRPFX. In addition, the new ETF features no minimum initial purchase ($1,000 for the mutual fund) and comes with the tax efficiency and intraday liquidity of the exchange-traded structure.

Like all Global X ETFs, PERM will be available for commission free trading on the E*TRADE and Interactive Brokers platforms.

Although often overlooked by some traders, forex trading risk management is extremely important if you want to be a successful trader. Why? Well, as you may know, as the forex market is quite volatile – and there is a substantial amount of leverage available, there is a chance that you can lose all – and more – of your invested money if you do not properly employ risk management.

One of the best ways to combat the problem is to plan for each trade in the proper manner. One way to properly plan your trades is to minimize your trade losses. In other words then, you should know when to control your losses before you engage in a specific trade or trades. For instance, you can set a hard stop – or set your loss stop at a specific point before engaging in a trade. Conversely, you can also set up a mental stop – which is less concrete than a hard stop, but it nonetheless is another way to minimise forex trading losses. The most important aspect of implementing a stop loss though is to stick with this stop loss. Emotions will often come into play when the actual trades are in progress and there is a chance that you may let the stop loss move further in the hopes of seeing a currency recovery. However, this practice will most likely result in you losing more money.

You should also ensure that your lot sizes are a reasonable size. Lot sizes refer to the forex transaction sizes; a standard forex transaction size is 10 000 units, but mini-lots may be 1000 currency units. While some forex brokers may encourage you to get larger lots, in order to minimize risk, it is a good idea to keep your lot size on the smaller side. If you keep your lot sizes smaller initially, you will more likely use less emotion when you make trades – and thus, you will learn to depend on sensible logic and decision making.

Along similar lines, while you should keep your lots sizes small, you should also not open too many of these lots. Additionally, it is vital to understand currency pair correlations. As an example, if you were to go long on EUR/CHF and short on EUR/USD, these pairings equal to two long lots of EUR. This situation is not an ideal one because if the EUR decreases in value, you will feel this effect twice as bad. Thus, it is important that you are both knowledgeable and keep track of your exposure.

Overall then, due to the higher risks involved with forex trading, risk management is more important when it comes to trading currencies. As you may realize, traders need to act – and quickly – when there is an opportunity in the forex trading marketplace. If you have proper risk management strategies already in place, you will be in a better position to act upon these opportunities. After all, if you want to be a successful forex trader that is involved in currency trading for the long haul, you must be disciplined and adhere to certain risk management procedures. If not, you do stand a chance of losing everything within an extremely short period of time – even minutes.

by Robert Kiyosaki

You may have noticed that gold is hovering around $1,360 an ounce (sliding recently after a big run-up) and silver is around $30 an ounce. That means in November of 2010 alone, gold increased in price by 2 percent and silver by 14 percent. Investing in gold and silver beats saving money in a bank earning less than 0.1 percent per month. Once again, this is further evidence that savers are losers as central banks of the world print trillions of dollars.

With paper money declining in value, millions of people are finally climbing on the gold wagon. Everywhere I go, I see signs that say, “We Buy Gold,” calling out to people desperate for cash to trade in their gold jewelry.

For years now, I’ve said that silver is a better investment than gold.

To quickly summarize, here are a few reasons:

• Silver is consumed and gold is hoarded.

• Silver is a precious metal and is also an industrial metal that is used in electronics, medicine, water purification, and jewelry

• Today stockpiles of gold are increasing while stockpiles of silver are decreasing. (This means there’s an abundance of gold and a shortage of silver).

• The gold/silver ratio is historically 14:1. This means that if gold were $14 an ounce then silver would $1 an ounce. Today, the ratio is approximately 50:1. Silver is extremely underpriced. If silver held to the historic 14:1 ratio, with gold at $1,400 an ounce then silver should be $100 an ounce — not the $30 an ounce it is today.

In my opinion, when you combine the fact that there’s a shortage of silver and that it’s underpriced, silver is the safest and best investment today?but not for long.

A logical question is, “Why is the price of silver suppressed? Why is silver so much lower than gold?”

There are two primary reasons for silver’s low price.

Number one, central banks buy gold, not silver. To bankers, gold is money and silver isn’t. Today central banks are buying tons of gold, with India being one of the biggest buyers. This elevates the price of gold, leaving silver the bridesmaid but not the bride.

The price of silver is manipulated. The price of silver is intentionally kept low. While this is criminal, it’s not illegal. Yet for decades, COMEX, the commodities exchange, has been in cahoots with the biggest silver investors at the expense of the little silver investor. This is about to end, thanks to some regulatory changes that may offer the biggest opportunity for silver investors between January and March of 2011.

What has changed?

Rumors are flying that more than 25 lawsuits have been filed against commercial investors such as JP Morgan and HSBC, accusing them of price manipulation to keep the price of silver artificially low.

The Commodities Futures Trading Commission (CFTC), which is to the COMEX what the SEC is to the New York Stock Exchange, has passed a new law which will force COMEX to play fair, forbidding such massive short positions on silver.. The actions of the CFTC are one more reason for last November’s 14 percent price rise in silver. The price manipulation of silver is about to end.

How was the price of silver kept low?

Big investors short-selling silver have kept the price low. For decades, the biggest players in the silver market, commercial investors such as JP Morgan and HSBC, have taken massive short positions on silver.

What does short selling mean?

Short selling (shorting) means you sell something you don’t own. Simply put, you borrow something to sell with the promise you will return what you borrowed.

It’s not much different than going to your neighbor to borrow 5 pounds of flour and promising to return 5 pounds of flour in a month.

Shorting is done in all markets: commodities, stocks, bonds, and real estate.

The commercial banks, generally large banks such as JPMorgan and HSBC, sell borrowed silver from the COMEX and pocket the money. The banks use that money to invest in other higher-returning investments such as stocks or bonds.

Meanwhile, COMEX has earned billions of dollars from the interest on the borrowed silver. The commercial banks and the COMEX both profit from this large short position of silver, the larger the better.

Now, with the new CFTC law, the commercial banks will need to buy back silver and return it to the exchange. The problem is not a money problem. The problem is a shortage of silver.

When the commercial banks start buying rather than selling silver, this will cause the price of silver to rise, increasing the costs to replace the silver. It’s simple supply and demand.

This massive big short has left the banks with a large margin-call when a broker asks an investor to bring an account up to a minimum position. How big is the margin call in silver? It is estimated that the total net short position on the COMEX is 550 million ounces of silver. And that’s just on the COMEX. Worldwide, it’s estimated that the short position is 2 billion to 3 billion ounces of silver.

If this is true, that means 2 billion to 3 billion ounces of silver have been borrowed and need to be purchased and replaced.

Again, the problem is not a money problem. The problem is that there’s not enough silver to cover the margin-call.

When will this margin-call occur?

The laws passed by the CFTC and Congress take effect by March 2011.

If the laws aren’t repealed, the big commercial banks will be forced to buy silver to replace the silver they’ve been borrowing. When they buy, the price will go up.

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And if the price of silver goes up during this buying period, their losses will grow like an atomic mushroom cloud. This means that the big banks and COMEX will be doing everything possible to keep the price of silver low so that they can buy silver to cover their exposed positions. In the next two to three months, you will probably see huge swings, up and down, in the price of silver.

I’ve been buying silver for years, starting at under $4 an ounce. One year ago, silver was about $17 an ounce. Today it’s about $30 an ounce. I believe $50 to $60 an ounce is possible for 2011.

I believe it’s possible to see the price of silver gain more in one year than it has gained in the past twenty years.

As I close this column, I advise you to read this great interview of Ted Butler, the person who has for years single-handedly been demanding Congress to force the COMEX and big commercial banks to play fair.

As Ted Butler states, “It is time to sell gold and buy silver.”

By Nicholas Larkin and Pham-Duy Nguyen

Gold’s 24 percent surge this year to a record is proving no deterrent to George Soros, John Paulson and Paul Touradji, whose investments signal more gains for the longest winning streak in at least nine decades. Securities and Exchange Commission filings this month by Soros Fund Management LLC, Paulson & Co. and Touradji Capital Management LP listed investments in gold as their biggest holdings. Exchange-traded products own 2,088 metric tons, equal to nine years of U.S. mine supply, data compiled by Bloomberg show. Precious metals will produce the best commodity returns in the next year, Goldman Sachs Group Inc. said in a Nov. 9 report.

The purchases show how investors are snapping up hard assets as governments and central banks led by the Federal Reserve pump more than $2 trillion into the world financial system. Gold in exchange-traded products, as much as half of which may be held by individual investors according to BlackRock Inc., is equal to more bullion than the official reserves of every country except the U.S., Germany, Italy and France.

“People who are selling gold here are making a big mistake,” said Michael Pento, a senior economist at Euro Pacific Capital Inc. in New York who correctly predicted gold’s highs the past two years. “The gold bull market will end when real interest rates become positive and we’re very far away from that. The Fed believes it’s going to have to print more money to keep real interest rates from rising and rescue the economy.”

Interest Rates

Gold gained 87 percent since September 2007 when the Fed began cutting benchmark interest rates and global credit markets started to falter. The Standard & Poor’s 500 Index of shares is down 21 percent since then, even after last year jumping 23 percent, the most since 2003. The Fed has kept its benchmark interest rate near zero since December 2008 and plans to pump another $600 billion into the economy through June by purchasing government bonds, a program known as quantitative easing.

The central bank bought $1.7 trillion of securities in a first phase that ended in March. The U.S. Dollar Index, tracking the currency against six counterparts, slumped 8.5 percent in the third quarter, the most in eight years.

“QE2 just further strengthens the already strong market for hard assets like gold,” said Michael Cuggino, who helps manage $9 billion at Permanent Portfolio Funds in San Francisco, and has about 20 percent of his assets in gold. “Real short- term interest rates after inflation are still negative and until that changes, commodities are going to continue to make higher highs.”

Record Price

Gold, which doesn’t pay a dividend, reached a record $1,424.60 an ounce in London on Nov. 9 and was at $1,362.40 at 8:29 a.m. Prices are heading for a 10th consecutive annual gain, the best performance since at least 1920. The S&P 500 Index returned about 9.5 percent with dividends reinvested, according to data compiled by Bloomberg, and Treasuries returned 7.3 percent, a Bank of America Merrill Lynch index shows.

Other precious metals have done better this year. Silver futures rose 61 percent through Nov. 19 and would have to gain another 85 percent to reach the record $50.35 an ounce reached in New York in 1980. Palladium advanced 72 percent in London and would need to add another 60 percent to match the all-time high of $1,125 an ounce reached in 2001.

Investors bought shares of ETPs representing 1,081 tons of silver worth $945 million since the end of September, according to data from four providers compiled by Bloomberg. Gold in ETPs such as the SPDR Gold Trust, the biggest, fell 9.5 tons. Investors may have considered silver cheap relative to gold and bet that it would benefit from the economic recovery, said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.

‘Biggest Drawback’

Industrial applications account for 9 percent of gold consumption, while for silver it’s about 50 percent of demand, according to GFMS Ltd., a London-based research firm.

Speculators in Comex gold futures cut their net-long position, or bets on higher prices, by 11 percent to 218,479 contracts in the week ended Nov. 16, data from the Commodity Futures Trading Commission show. That’s still about 40 percent more than the average over the last five years.

“The biggest drawback for gold right now is that it’s just so darn popular,” said Barry James, who manages $2.2 billion as chief executive officer of James Investment Research Inc. in Xenia, Ohio. “Gold has become a fad and there’s a little mania involved in this rally.”

Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, described gold at the World Economic Forum’s January meeting in Davos, Switzerland, as “the ultimate asset bubble.” Buying at the start of a bubble is “rational,” he said.

‘Pretty Ideal’

“It’s all a question of where are you in that bubble,” Soros, 80, said in a speech at a meeting organized by the Canadian International Council in Toronto on Nov. 15. “The current conditions of actual deflationary pressures and fear of inflation is pretty ideal for gold to rise.”

“The big negative is that too many people know this and a lot of hedge funds are very heavily exposed,” Soros said. “Gold has shown tendencies to go parabolic and usually bubbles tend to end in that parabolic rise before the collapse.”

Gold rose more than eightfold from 1976 to 1980, reaching a then-record $850, before plunging 67 percent to as low as $284.25 over the next five years. That peak adjusted for inflation is equal to $2,266 today, based on a calculator on the Federal Reserve Bank of Minneapolis’ website.

Paulson & Co.

Paulson & Co., which manages $33 billion of assets, is the largest investor in the SPDR Gold Trust and Johannesburg-based AngloGold Ashanti Ltd., Africa’s biggest producer, an SEC filing Nov. 15 and data compiled by Bloomberg show. The New York-based fund is run by John Paulson, 54, who bet against U.S. mortgage markets amid the subprime crisis. The company’s funds generated profits of more than $3 billion in 2007.

Soros Fund Management, which according to Soros’s website manages about $27 billion of assets, cut its holding in the SPDR Gold Trust in the third quarter, and bought a stake in iShares Gold Trust, also backed by bullion. Soros listed NovaGold Resources Inc., based in Vancouver, and Kinross Gold Corp., based in Toronto, among his fund’s 10-biggest holdings in an SEC filing Nov. 15.

Touradji Capital Management maintained a holding worth about $88 million in Toronto-based Barrick Gold Corp., the world’s biggest gold mining company, an SEC filing on Nov. 12 showed. New York-based Paul Touradji, 39, also bought a stake worth $1.7 million in Phoenix-based Freeport-McMoRan Copper & Gold Inc., the filing shows.

The data on the holdings reflect the funds’ positions as of the end of September. Spokesmen for the fund managers declined to comment.

290 Tons

Investors in options on Comex gold futures are anticipating the rally will continue. The second-most widely held option gives holders the right to buy gold at $2,000 by November 2011.

Investors in gold-backed ETPs bought shares representing 290 tons this year, worth $12.6 billion, data from 10 providers show. Investment overtook jewelry as the biggest source of demand last year for the first time in three decades and will retain the top spot this year, according to GFMS, which has a team of 18 precious metals analysts.

Euro Pacific’s Pento says gold will go as high as $1,800 by the end of next year. Pento correctly predicted in September 2009 that gold would reach $1,200 before the end of the year and in July this year forecast $1,400.

Allison Nathan, Jeffrey Currie and other analysts at Goldman Sachs in London, New York and Hong Kong, are forecasting $1,650 in 12 months. Precious metals will return 30 percent over the period, more than energy, industrial metals and agriculture, they said in a report Nov. 9.

‘Gold Standard’

“I flagged gold, not as a potential return to the gold standard, but as an indicator of lack of confidence in the growth policies,” World Bank President Robert Zoellick said in an interview Nov. 10.

One-month implied volatility on the euro against the dollar climbed to 14.49 earlier this month, the most since June.

“Gold is the preferred currency right now,” said Ronald Stoeferle, an analyst at Erste Group Bank AG in Vienna who expects gold to reach $1,600 by June. “The Fed can print and produce money, but it cannot produce confidence and trust in the U.S. dollar.”

FX Signals by MDM Partners