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-- Posted Friday, 31 March 2006 | Digg This Article
"The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true." - James Branch Cabell Ever since returning to the bullish camp on metals in the spring of 2003, I’ve watched numerous "experts" attempt to step in front of this commodities freight train by predicting its top or best days behind it. Even I’m guilty of that in the copper market lately. And each time so far, the party or parties have been flattened. (I, personally, have been tied to the tracks with copper wiring). Who could forget that commercial a year or two ago on TOUT-TV (CNBC-TV) for the sergeant-at-arms of the "Don’t Worry, Be Happy" army on Wall Street, Jim Cramer, where he cried, "Commodities are dead!" Or how about TOUT-TV’s number one Pied Piper, Larry Kudlow, making constant "gold is dead" predictions all the way up from $350? The secular bull market in commodities has taken no prisoners on its march to one new high after another. It has eaten up and spat out bear meat all the way up. The $64,000 question (and based on the numerous people who have contacted me of late, the dollar figure is a lot higher based on how much of their portfolio is now in commodity-related investments) is, "Has the party reached a climax?" James Branch Cabell’s quote above is most appropriate at this juncture in the commodities market. The bullish argument is indeed a best of all worlds view: Numerous years of under exploration and development led to a shortage of commodities while demand continues to outstrip supply. The bearish argument, which is hardly audible now, is that prices have risen too far and if demand slackens, prices can tumble and when all seems perfect, the end is near. So where do I stand? Hold on – let me remove the copper wiring… While there’s no apparent reason to exit the stadium for the parking lot before the crowd, I do think the easy money has been made. I also believe going forward it’s no longer just about being a buyer, particularly on any weakness, but instead one should consider being a scale-up seller on selective commodities going forward. While certain commodities like precious metals, uranium and certain agricultural-related still look to have very bright futures, I do think we’re going to witness a significant economic slowdown in the U.S. and other parts of the world, and when we do, base metals in particular are vulnerable going forward. It’s critical that you realize this doesn’t mean start selling the moment you finish reading this. This outlook is for the months and few years ahead. Again, be a partial seller as prices rise versus a buyer now. It doesn’t mean you don’t involve yourself with an attractive copper stock but you make sure precious metals stocks outweighs your base metals components. In the guessing game that Wall Street calls "market forecasting," I’m very pleased that I’ve been on the right side of every substantial move in gold, silver, platinum, palladium and uranium since the spring of 2003. But knowing most investors attitudes are, "what have you done for me lately," resting on my laurels now is not going to lead to having my name added to many 2006 Christmas card list. Therefore, I will wheel out the Ouija board, cards, spinning wheel and coin and give you my prognostications (okay now, heads is up, tails is down). Gold – When gold was under $400, I spoke of $500 gold as being a question of "when?" not "if?". Once $500 was hit, I then said $600 was a question of "when?" not "if?". Assuming it will be in a matter of days or weeks, is $700 the next "when?" The very fact that most American investors have not participated in the secular gold bull market up until now and that TOUT-TV has only paid it rare "lip service" for a very short period when it’s been "in the news" has actually been a bullish factor in my book. I’ve half jokingly stated that I would remain bullish on gold until such time TOUT-TV moves the oil gal (I use to call her babe until a woman wrote and told me that I was being sexist) from the oil pits to the Comex floor on a daily basis. Yes, some of you write expressing frustration that the mainstream financial media mostly ignores gold and the reasons for its rise but hey, be happy about it. Why? If gold is going to hit those four-digit price levels some predict, you’re going to need to sell your $250, $350 and even $500 gold purchases to someone. Who better than those who are just coming in thanks to TOUT-TV while you’re heading out. (Personally, I hope Kudlow buys mine but he may be in a serious liquidity crisis if I’m right about what’s going to unfold socially, economically and politically in America). While the old high of $875 or so on gold will be tossed around, it’s important to note that it was just a one-day wonder. The last area where any real amount of trading took place is in the $650-$675 area. 
What ever is left of the gold "cartel" ( http://www.gata.org) is likely to make a Custer-like last stand at this level. (Is it just me, or does anyone else see GATA’s Bill Murphy with war paint on his face, dressed as a Comanchee on a horse, firing an arrow into the heart of a cartel member holding a Goldman Sachs flag?) I do think resistance is likely to be formidable from $650 to $700 but there’s nothing on the horizon that even remotely looks like it can stop the runaway gold train. That in itself may be the only real negative.Silver –Hi-Ho Silver, away! The talk of silver ETFs (Exchange-Traded Funds) has been the best news for silver since the Hunt brothers tried to corner the silver market 25 years ago. For many moons, silver experts like Dave Morgan http://www.silver-investor.com/ have spoken of a serious silver deficit despite prices remaining relative flat. I stated several dollars ago that the very fact that the Silver Usage Association was putting up a big fight to stop the ETF from becoming reality was an extremely bullish factor for higher prices. And, while I ultimately believe $15 or even $20 can be hit, the actual announcement of the American Stock Exchange silver ETF trading could be a "buy the rumor, sell the news" event.Platinum and Palladium –New all-time high for platinum and palladium has almost doubled from its lows around $180. I continue to favor the PGMs versus base metals and believe the spread between platinum and palladium should narrow in favor of palladium. Copper –"People find it easier to forgive others for being wrong than for being right." Joanne Kathleen Rowling I’m hoping Ms. Rowling is right when it comes to my copper opinion. I never envisioned $2.50, so don’t expect me to embrace it and look for $5 now. Momentum indicators do suggest it can make a blow off high as high as $3. But, as I stated at the onset, certain commodities now need to be scaled-up sold and copper is definitely one of them. Again, selective copper stocks are okay but base metals should be under-weighted in ones portfolio going forward. Uranium –While two metals experts battle over who is the "original uranium bug," I take comfort in the fact that I "lit" up to it back in early 2003 when it was in the mid-teens. My original target of $50 has now been bumped up to $75. Why? Only about 60% of uranium consumed in the world’s nuclear reactors is mined each year. Without supplies from stockpiles and recycled Russian warheads, all the nuclear plants currently in operation around the world could not continue running, not to mention those being built now or in the planning stages. I’ve repeatedly stated that of all the metals, uranium was the best bet to continue rising. According to the International Energy Agency in Paris, we may see up to $200 billion in new investments flowing into the nuclear industry by 2030. There are currently 24 new reactors being built, another 41 have been ordered or planned. Oil –See my comments in this Marketwatch story at http://www.grandich.com/docs/mw_03-31-06.pdfU.S. Dollar –The counter-trend bear market rally is ending and a significant technical top has been established. I’m looking for the U.S. dollar to break key support around 87 basis the U.S. Dollar Index in the second quarter and be near critical support of 80 by this time next year. Mining and Exploration Shares –If you think we’ve seen the lion’s share of mergers and acquisitions in the mining industry, boy are you in for a rude awakening. I know in my heart of hearts that the boardrooms of major producers have been filled with meetings on how their respective companies are going to maintain their production levels past the next couple of years? We’ve simply not had anywhere near the amount of necessary new discoveries to fill the high water marks major producers have set in recent years. I believe our socks are about to be knocked off by the increased pace of M & A going forward.
-- Posted Friday, 31 March 2006 | Digg This Article
Peter Grandich is the Managing Member of Grandich Publications, LLC (www.grandich.com).
The company publishes The Grandich Letter (first published in 1984) which covers the metals and mining industry, follows world markets and economies, and covers the Canadian markets from an American prospective.
Grandich also provides a variety of corporate finance and development services to publicly-held companies.
Peter Grandich is also the Managing Member of Trinity Financial, Sports & Entertainment Management Company, LLC (www.trinityfsem.com), a Registered Investment Advisor in the State of New Jersey. Trinity provides investment advisory services to individuals, small to mid-size businesses, professional athletes and entertainers.
Peter is a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.
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