SATURDAYDECEMBER 2, 2006
THE INTERNATIONAL FORECASTER
DECEMBER 2006 (#1) Vol. 10 No. 12-1
P. O. Box 510518, Punta Gorda, FL 33951-0518
An international financial, economic, political and social commentary.
Published and Edited by: Bob Chapman
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International_forecaster@yahoo.com
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US MARKETS
Those of you who are still in the stock market should be very cautious. The Working Group on Financial Markets cannot manipulate the market indefinitely, just like they cannot support the dollar and suppress gold and silver indefinitely.
We are not in a bull market in stocks. We are still in an extension of a bear market rally that has persisted for four years, and is the result of manipulation. It is hard to call this a bull when 90% of NYSE trades are black box trades and IPO’s are being held back due to lack of investor demand. Recently three IPO’s totaling over $700 million were pulled from the market on the same day. There is little public interest and that doesn’t happen in a bull market. This phenomenon is also occurring in Europe. This is in spite of European markets being at five-year highs.
Then there is the prospects for the economy. It would be great to be able to rely on government statistics, but we cannot. They are simply a fraud. This week the Commerce Department restated 3rd quarter GDP from 1.6% growth to 2.2%. They must think we all live in a pumpkin patch. Even those false figures are not promising. By all measures the US economy is weakening in spite of the sea of money and credit available. The housing market is an example. The bubble really hasn’t even been broken yet. Wait until you see what the next few years bring. There has been reckless business lending as well that hasn’t even showed up as yet as being problematic. Foreclosures as we predicted they would are soaring, and the fallout of the sub-prime ARMS has only just begun. The inventory of new and existing homes is at record levels. Existing home prices are coming down. New home prices are holding because they are discounting and selling close to or at cost. That cannot continue indefinitely. The housing sector is no longer a sector for job growth – it is a producer of layoffs. Weakness can only lead to further economic deterioration.
Then we have $375 trillion in derivatives whose trading volume is half a quadrillion dollars per quarter. How’ that for madness? Sanity in our markets is history. By way of comparison, US annual GDP is $12 trillion. This market will explode and when it does lots of money will be lost.
We have offshoring and outsourcing under the title of free trade and globalization raping our economy. In moves planned 25 years ago, GM and Ford are on the edge of bankruptcy. This doesn’t sound like a Goldilocks economy to us. How does that fit with Ford shutting 15 plants and laying off another 45,000 workers making $31.64 an hour who will now make $10.00-$12.00 an hour if they can find work. Who is kidding whom, this economy is on the decline in spite of increases of money and credit of 14% with inflation over 10%. Retail sales are in a funk and consumers have to be lured into stores via discounts, freebies and extra store hours. Even Wal-Mart is showing flat sales with major discounts.
Rents, both residential and commercial, are accelerating. Energy prices are edging up. The cost of building plants and equipment is escalating at an alarming rate, yet we are told inflation is 3.4%. How dumb do they think we are? Prices of commodities are also moving up again.
The price of imports into the US is escalating, which means more inflation. Production costs in China and elsewhere are rising and so will the cost of exports.
Stay skeptical, as there is no such thing as coincidence. The market is headed down so be prepared for it.
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GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS
Another non-event, Barrick Gold will not extend its offer for the shares of Nova Gold beyond 12/6/06.
Wednesday wasn’t all that bad. Gold was off but the producing gold shares were up for the second day in a row in spite of bullion’s weakness. The $2.00 upside in the access market yesterday must have helped, but the elitists hit the second fix in London. No matter what they do gold keeps coming back. Silver was stronger than gold, it was up all-day and got nipped on the close. Oil helped, up all day, as the inventories all fell for gasoline, oil and distillates. Iraq and Afghanistan have gotten worse and the buffoon from the White House may not make his Jordon meeting. The dollar came back a wee bit, up .24 to 83.35, but the trend is down. Gold closed down $1.80 to $635.00 and silver rose $0.01 to $13.55. The December contract fell $1.90 to $641.80; silver rose $0.01 to $13.55. The access aftermarket in gold was up $1.40. The rumor in world gold markets is that the sellers were central banks. We say, so what else is new? On Wednesday the combined CBOT and Comex open interest fell 8,051 contracts, which was substantial.
Tuesday the large Tocom gold shorts reduced their net short position by just 258 contracts to 141,325. Goldman covered 190 of those contracts to net 32,678. The big shorts reduced silver shorts by 199 contracts to 2,664. The HUI lost .52 to 343.36 and the XAU gained .41 to 143.56.
On Wednesday the Dow rose 90 points to 12,227. S&P rose 117 Dow points and Nasdaq 120 Dow points. Oil rose $1.47 to $62.46, gasoline rose $0.07 to $1.71 and natural gas was up $0.31 to $8.87. The euro fell .0052 to $1.3141, the pound fell .0073 to $1.9447; the Canadian dollar fell .58 to 87.88 and the USDX, the dollar index, rose .24 to 83.35. The 2-year Treasury yielded 4.68% and the 10’s were 4.52%.
S. S. Tarapore, former Deputy Governor of the Reserve Bank of India, has strongly advocated for increasing the proportion of gold in India’s faux reserves. Presently gold holdings are 3.6% of reserves. If reserves were raised to 10% it would cost $10 to $11 billion.
Over and over again we tell listeners not to invest in South Africa, Zimbabwe, the ex-Soviet satellite states, Russia, China and Mongolia.
Peter Hambro Mining, Russia’s third largest gold miner, may lose five mining licenses for not exploiting them, as the government cracks down on idle resource projects. The Russian government gains revenue via an extraction tax and if the projects are not being developed no revenue comes in from them. There is also an export duty on commodities.
The inspectorate has accused oil and gas companies, including Royal Dutch Shell, of noncompliance with the environmental rules. We do not know who is right, but we do know we do not need the hassle.
Unofficial statements by the Reserve Bank of Australia says all its gold is out on loan, but in their financial statements state gold reserves are 79.8 tons, that really doesn’t physically exist. It’s been sold and the bank will receive dollars eventually. All the central banks are doing the same thing.
China will impose restrictions on small foreign investors in the gold mining sector. Large investors will not be so encumbered.
Russia’s gold and foreign currency reserves were $283.4 billion on 11/24, up from $278.9 billion on 11/17. That is a $4.5 billion addition.
Tanzania is considering raising mining royalties.
Gold was up in the access market and overnight into Thursday. It was strong all day closing at $646.0, up $11.60 and silver flew up $0.36 to $13.91. The December contract month had gold up $11.10 to $652.90, silver up $0.36 to $14.12, copper up $0.04 to $3.20 and the access aftermarket up $1.20. Gold and silver were assisted by higher energy and foreign currency prices as the dollar got whacked again. The base metals index is also back to its former high. Early today the Fed increased repos by $21.5 billion, a very hefty increase. Are they trying to hold the market up or hold down gold and silver? We believe they are holding the market up. Wednesday on Tocom the big shorts increased their short position by 2,347 contracts to 143,672. Goldman’s part of that was 59 contracts or 33,207. They are slowly increasing their shorts as gold moves higher as they always do. Big silver shorts reduced their shorts by 119 contracts to 2,545. Dow Jones just had to talk about the possibility of an IMF gold sale. The result is zero impact on the market. The HUI ended the day up 12.59 to 355.54 and the XAU rose 5.38 to 148.74.
The Dow finished at 12,222 on Thursday, off 5; S&P rose 10 Dow points and Nasdaq fell 5 Dow points. We said oil would rebound from $57.00 after the election to $68.00 and that seems to be happening. Oil closed up $0.67 to $63.13, gasoline unchanged at $1.71 and natural gas off $0.03 to $8.84. The euro rose .0096 to $1.3246, the pound rose .0202 to $1.9663, the Canadian dollar fell .25 to 87.63 and the USDX, the dollar index fell .49 to 82.86, the 2-year Treasury was 4.62% and the 10’s were 4.46%.
The Securities Board of India is in the final stages of clearing Gold exchange Traded Funds in India, the largest market for gold in the world. Benchmark Mutual Fund and UTI Mutual Fund, have already submitted proposals and Merrill Lynch is very interested.
Our sources continue to tell us there is quiet buying of gold by Ireland, Italy and China’s central banks.
The ECB sold 23 tons of gold as of November 30th in line with the Central Bank Gold Agreement. There were no further details.
We believe, as we have said before, that the Chinese with $750 billion in US dollar assets has to be a buyer of gold. That is in process and will go on for the next couple of years offsetting sales of European central banks. This buying alone could easily run gold to $1,700 an ounce in 2007 and at worst by 2008. Harry Schultz sees $1,500, Jim Sinclair$1,600, the IF $1,700, and Jim Turk $2,000.
Friday was a passable day even though gold finished off $1.50 at $645.10, but silver was firm rising $0.06 to $13.97. The February contract closed at $650.60, -$2.30, silver rose $0.08 to $14.90, copper fell $0.02 to $3.17 and the access aftermarket was up $0.80. On Wednesday the combined open interest of Comex and CBOT fell by 16,491 contracts. On Thursday open interest rose 19,156 contracts. On Thursday the Tocom shorts fell 180 contracts totaling 143,492. Goldman covered 429 for 32,778. The same dealers reduced their net silver shorts by 173 to 2,374 contracts.
Turkish gold exports increased 19% YOY to 13.9 tons in November.
There was little change in the COT report, which means gold prices are headed higher.
On Friday the Dow was headed for another 100 plus point loss when the Working Group on Financial Markets and the Fed stepped in with a fresh $25 billion and salvaged a 28-point loss to 12,194. The S&P fell 36 Dow points and Nasdaq 108 Dow points. Oil rose again, up $0.30 to $63.43, gas up $0.01 to $1.70 and natural gas fell $0.42 to $8.42. The euro gained .0092 to $1.3335, the pound gained .0147 to $1.9797, the Canadian dollar fell .19 to 87.34 and the USDX fell .43 to 82.42. The 2-year Treasury yielded 4.53% and the 10’s 4.43%.
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SUBSCRIPTION and RENEWAL INFORMATION: 1-YEAR $129.95 U.S. Funds.
Make check payable to ROBERT CHAPMAN (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address. We accept Visa and MasterCard charges. Provide us with your card number and expiration date. We will charge your card US$129.95 for a one-year subscription.
Foreigners please use foreign U.S. dollar denominated checks or Money Orders.
Note: We publish twice a month by surface mail or twice a week by E-mail. international_forecaster@yahoo.com
