-- Posted Monday, 19 May 2008 | Digg This Article
| Source: GoldSeek.com
It was quite a week, Gold broke above $900, Silver is close to $17, banks wrote down as usual. Political risk is escalating; demand is increasing while supply is diminishing. It’s the same old story, now we wait.
Conditions are ripe for the smaller companies to finally begin to outperform.
It’s really been great as this long lull has given investors plenty of time to study the companies and accumulate their positions. To be candid, you may never be so lucky to have such an obvious play ever again in your life. The products continue to rise while the companies do nothing!
What a setup to make a fortune!
Metals review
It was a close call but Gold did manage to squeak above the all important $900 mark on Friday with a huge $20 day. The close was $0.10 off that. It seems like large money has slowly and patiently been entering the market below $900. They may have pushed the price up to trigger technical signals because they have their positions accumulated now.
This week was like a yo-yo up and down until finally Friday Gold was up over $20. What exciting action.
Gold above $900 is bringing in more money and is a buy signal which should be bought by many. I maintain that Gold will cross $1,000 before summer then fall and before Christmas best $1,000 for good.
All indicators are looking good especially the RSI which is about to cross 50 which signals a strong up move. The downtrend is broken and we will see if it can hold. Support should be at $900 or the 25 day MA at the lowest. Next point of resistance is $925 then $950 to $960 is quite significant. Look for the upward movements to continue.
Silver hung around just under $17 for most of the week and remains in consolidation mode. This platform building is fine and I would like to see it continue but like I said last week any spark could move Silver violently to the upside.
All three indicators are moving up nicely and are still at low levels. If Silver can get above the 25 day MA it should be off to the races with $17.50 as mild resistance and then $18 a bit stronger.
Platinum built a quick bullish flag pattern and broke out to the upside on Friday. Platinum remains on fire and has little to stop it. Fundamental reasons surface daily for it to go higher and technically it looks great too. Some resistance around $2,150 then the all time high which should be easily bested.
The Slow STO has risen sharply but can remain there easily for a long time without signalling any overbought condition. The RSI and MACD look strong with quite a long way to run up.
The 25 day MA is about to cross the 50 day MA which will give another buy signal.
Palladium broke up nicely on Friday as well.
All three indicators are in good shape. And as with Platinum the fundamentals keep getting better.
$475 is resistance then $525. Neither points of resistance look to be too strong but that doesn’t mean it will happen overnight. Look for a nice slow move up building solid bases along the way to strengthen and provide support.
Fundametals Review
While watching the talking heads on CNBC Wednesday I couldn’t help but turn the sound on as Rick Santelli was reporting on the tame CPI numbers. The traders were in the background wearing chef hats and saying someone is cooking the books. It’s been obvious for years that the government is cooking the books when it comes to money creation, inflation, jobs, GDP etc... It is a monumental week as the simple facts have finally, to some degree, been recognized on CNBC.
Gold, and Silver to a lesser degree, is a tool they have used to help in the manipulation. By keeping the price down it is easier to sucker the populous into believing their numbers. I could go on all day here, but for the CPI to exclude food and energy which are rising the most is total BS. If you still believe the numbers the government puts out, then stop reading now and go turn on Mad Money or “Alice in Wonderland”. I wish you good luck but, more than luck will be needed.
MBIA marked a first quarter $2.4 billion loss. The $3.01 loss per share was much larger than the $1.21 forecast by analysts and the third straight quarter of losses. Pressures are expected to remain for several quarters. The company says they have ample liquidity and will not need to raise more cash.
James Dimon CEO of JP Morgan says while the crisis is over the recession has just begun. He guesses there is a third of a chance that the recession will be as bad as 1982.
Europe’s largest bank reports larger profits year over year as a result of strong demand from Asia. HSBC only reports every half so we will know more by August. The fact that the slowdown in the US is not affecting growth in Asia is becoming clearer all the time. Demand for commodities and precious metals as wealth and the standard of living increase will in turn increase.
AIG lost $7.8 billion in the first quarter and is now looking to raise $12.5 billion. The loss is attributed to credit and mortgage issues. The losses were beyond their expectations at $9.11 billion and are down from the $11.12 write-down in Q4 of 2007. In contrast AIG wrote-down $6.09 billion compared to $3 billion in the previous quarter. The 7% housing start number this week may suggest the mortgage market is picking up again....if you believe the government statistics.
The combined ratio rose to 96.86% over the quarter and if it goes above 100% that means AIG is spending more than they are bringing in. Profits are narrowing as a result.
Paul Volcker made some candid remarks which should be headed and taken very seriously. He is the legendary inflation fighter who had the gumption to raise rates in the face of rising inflation. And while this action caused trauma to the economy, it was needed then and is needed now. The longer term effects to the economy are much better if the pain is taken and risk is dispersed. Simply printing and pumping money into the system will only relieve pain temporarily and eventually will magnify the problem exponentially.
A few pertinent quotes from Volcker;
``Intervention in a broad range of credit-market instruments may imply official support for a particular sector of the market or the economy,'' Volcker said in testimony to the congressional Joint Economic Committee in Washington today. Support for specific markets ``throws them into political battles,'' he said in an interview, referring to the Fed.
``Independence is integral to the central responsibility of the Federal Reserve'' for ``the conduct of monetary policy,''
Volcker, who engineered a surge in interest rates to 20 percent when battling consumer price gains 18 years ago, said ``there is some resemblance to where we are now in the inflation picture to the early 1970s.'' The Fed failed to contain a pickup in prices at that time, spurring the acceleration of inflation later that decade, he said.
``If we lose confidence in the ability and the willingness of the Federal Reserve to deal with inflationary pressures'' and buttress the dollar, ``we will be in real trouble,'' Volcker said. ``That has to be very much in the forefront of our thinking. If we lose that we are back in the 1970s or worse.''
``The Federal Reserve as other central banks is obviously taking onto its balance sheet a lot of mortgages these days,'' Volcker said. ``Well, the creators of the Federal Reserve system would be rolling over in their graves if they knew the Federal Reserve is buying mortgages.''
``Where are Fannie Mae and Freddie Mac?'' Volcker asked. ``These are two congressionally created agencies with the specific responsibility'' of supporting the mortgage market, he said.
Unfortunately the testimony provided by Volcker was not carried on financial TV for any length of time. So far a couple videos have emerged and are linked here with Ron Paul’s questions, and here with Volcker’s frank and true testimony.
Chile is in the midst of its worst drought in five decades. They are on the verge of power rationing because of the lack of hydroelectric power production. Couple that with the Eskom power situation in South Africa and it will help commodity prices lift higher. A couple interesting fact;
``Smelting aluminum uses about four times as much power as for copper and more than twice that of zinc, Barclays Capital said. About 80 percent of world aluminum smelting capacity is in nations at risk of electricity shortages, according to Citigroup.``
Congo had to ask miners to cut power after the theft of copper power lines in early may. Theft continues to increase as commodity prices rise. Also from the story;
"Energy availability in the next 10 years is going to be a very important issue to the mining sector. We see these as structural changes, not cyclical changes."
South African mine production fell 8.3% in the first quarter. That number is seasonally adjusted so may in reality be much greater. A 10.1% decrease in gold production and 8% decrease in non-gold minerals with Platinum making up 5% of the decrease. The power cuts and heavy rains were blamed.
The recent ban on futures trading in India on soya oil, potato, rubber, chana (gram), while rice, wheat, urad and tur has sparked demand for a halt to Gold and Silver futures trading. It’s pointless as it could not affect the world price and investors in India would be hurt by this when buying or selling. India cannot fall for this, the markets will work themselves out, although they can be managed for a time, it cannot last forever.
While some demand may diminish if the ban goes through, Thailand may pick up the slack as futures trading in Gold have been approved to begin next month.
Over 90% of miners interviewed said they are expecting to make an acquisition within the next two years. 40% of respondents said they could only meet their growth targets through acquisitions. Although it may not be all or even directly the large miners themselves, someone is depressing the prices of the Junior and Exploration companies and this may help the large companies acquire small ones at a very steep discount. Hopefully they have a good management team well equipped to fight off a takeover at a valuation that is much too low and destructive to shareholders.
Large miners are flush with cash in the midst of record commodity prices and can easily take out juniors. The juniors are, in many cases, hurting for cash and having trouble raising it. Whether this is by design or a result of the cash crunch is debatable, but something’s got to give in the not too distant future.
Gold is now on its way to $1,000 again, and hopefully this time will spark the interest I expected when it first hit. For companies to be going down in this environment is not right. 2+2=4 but the way the stocks have been trading lately makes me want to revisit my grade 2 math.
Kinross bought 15.18% of Rye Patch for a cool $1.25 million through a non-brokered private placement. That’s a steal and is a sign of times to come.
The same takeover story is told about many metals in general and this story relates to Platinum;
Leon Esterhuizen said “that the world's platinum demand was increasing, but that producers were afflicted by restricted power supplies, insufficient skills, and sharply increasing costs”
On the bright side many of the equities seem to be forming bottoming patterns and have begun heading higher, finally. Unfortunately it is taking a painfully long time for the realization of the high commodity prices to work its way down the line to the junior and exploration companies.
The tension is tightening between Australia and China. Chinese TV ran a show criticizing foreign investors in China focusing on Australian companies and hinted at possible or new restrictions. This comes while Australian authorities are reviewing pending Chinese investments and asking for re-submissions to possible investments by China into Australia’s booming commodity industry.
While China has over a trillion dollars in reserves they would rather acquire something with this paper while it still has value. And as Africa is seemingly anxious for Chinese investors, Australia is being cautious and rightfully so in my opinion. This may come to hurt investors in China though and it is hard to invest heavily in China with their political history. Certain companies which have exposure to other areas as well as some exposure in China may be alright but they are definitely something to keep a wary eye on.
Venezuela has tightened their grip on foreign investors by halting new investment. New open pit mining will not be permitted and logging concession revoked. Exploration in the Imataca Forest Reserve is now not allowed. Crystallex now has a huge battle on their hands as their huge Las Cristinas reserve falls within the reserves boundaries and just so happens to be an open pit.
Crystallex issued a release which states they have filed all appropriate application and received approval and final approval for the project. This is in stark contrast to the recent announcements by Venezuelan authorities. Crystallex is treading carefully and trying to squeak this one through, and they may. They may be allowed to finish the construction phase and possibly even begin production before the government steps in and nationalizes the project. The company doesn’t have many choices and certainly no good ones. Cut and run or stay and be nationalized further on down the road. Either way I am weary, although you may get some good trading opportunities.
Hecla mining last week had work halted as workers blocked roads demanding nationalization. Venezuela is very risky and is getting closer to nationalizing mines.
As the Gold price lagged last month the largest decline so far in the global hedge book was facilitated. While 18% or 4.8 million ounces were bought back there remains a 22 million ounce hedge out there still. AngloGold reduced by 1.2 million ounces, Buenaventura closed their entire hedge of 0.9 million ounces and Newcrest slashed theirs by 0.7 million ounces with 0.2 million ounces remaining.
The curious part of this article is the Barrick hedge covering. They have stated a conversion of 1.1 million ounces fixed-rate contracts to a floating-rate contract. This refers to interest rates. Does this mean their hedge price is floating now? So, possibly as the prices of Gold rises their hedged price will rise as well. Or maybe it’s a time factor. I am looking into this but so far haven’t gotten anywhere and will report as soon as this strange anomaly can be clarified. As many know Barrick has used many nefarious tactics in the past and GATA has some great work on this subject. One point to note is that a lawsuit was brought against Barrick some years ago and it was thrown out as Barrick was acting on behalf of the central bank, which is not subject to legal prosecution.
Some 32 companies reduced their hedges and the first quarter was the lowest total new hedges since the same quarter in 2002 at 7,137 ounces.
A must from www.jsmineset.com on rules to trading Gold;
1. You are right on what it takes to trade gold.
2. Gold has been acting just like this since $248, yet it has traded to $1033.
3. Gold acted just this way in the 1968 to 1980 bull market, yet went from under $40 to $887.50.
4. Have you ever considered who is on the buy side of all the short of gold derivatives still embedded in every production loan of the past ten years?
5. It is just those you blame for the depreciation of gold who have the most gold long.
6. COT is a fine in indicator because it is accepted as such.
7. A metals dealer is always buying gold and silver from production.
8. They immediately sell the future short.
9. Their best profit exists when they take the opportunity to pound the market to buy back the short at a large profit.
10. Therefore they never have a risk.
11. They do not file as hedgers but then who tells any truth now, LIBOR? The inflation figures? Priests?
12. This results in wild markets because of black mindless boxes being triggered by the metals dealers.
13. Gold is the smallest market in the world being played by the largest money in the world.
14. In the final analysis, gold is currency.
15. The consequence of bailing out all and any by the Fed will be the US dollar at .5200.
16. Gold will trade at $1650 on or before January 14th 2011.
17. This time gold may defeat all top callers by not crashing after reaching $1650.
18. The means by which the dollar will find a bottom and gold will stay up is the Federal Reserve Gold Certificate Ratio, modernized then revitalized.
19. This is not gold convertibility nor the old style Fed GCR, which was tied to interest rates in an automatic way.
20. M3 will be again be published, considered at 100 on a index.
21. The Federal Reserve GCR will be tied to the liquidity index M3.
22. Gold will have to rise in price according to the up or down move of the index.
23. The US treasury will never have to do anything.
24. Devices will start trading on exchanges that are wagers on the price of gold according to the index movement, relieving the US Treasury Department of the need to buy or sell gold to change prices.
25. In desperation then in the dollar market this device will be accepted as a dollar tie to gold and will act as above.
26. This will signal the dollar low.
27. It would take a level of .52 to be so awful that the Fed GCR is seen as salvation.
28. Assuming the price of gold is at $1650, I estimate that gold would trade above and below that by $100.
29. Be calm!
30. Trading gold is a game for pros.
31. The pros pick the pocket of the public trying to trade gold.
32. I teach you simple and unique technical analysis as a mix for you to determine intermediate and long term trends.
33. So many go right at the low cap gold shares, making participants tired when 50% of the community members try to pick the pockets of the other 50% of the community.
34. These newbies of TA were the force that first started to debilitate the juniors.
35. Then came those with a plan to own it all.
36. The plan is brilliant.
37. The plan involves a consolidator, gold derivatives and juniors selling for less than they are worth dead.
38. Now you have the total picture, so relax.
39. Gold is going to at least $1650 by January 14th, 2011.
40. In the same period the US dollar will trade at .52 on the USDX.
That’s a wrap up here in Canada. It’s May long weekend and sunny. Summer begins!
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-- Posted Monday, 19 May 2008 | Digg This Article | Source: GoldSeek.com
