Once again, we’re in a bull market for gold and gold stocks. It should last for many more years; then again, it may well end up being far less potent than some dream. Either way, however, we should eventually see noticeably higher prices for both the commodity itself, and for shares in many of the companies who explore for and produce it.
The bull market has been receiving more press coverage in 2003 than it did for the first 15 or so months of its existence. More people know now, for example, that gold-related mutual funds have been among the top performers of the last two years, though they have recently lagged.
What is less covered, however, is that—more often than not—those who have tried to take advantage of gold’s bull market have not yet made any money. In fact, many have lost money, largely by doing what investors typically do: buying high, and selling low. Regularly, I hear from people who thought sure as shootin’ that gold was off to the stratosphere a few months ago, and were making big bets as gold breached $350.00 per ounce, $360.00 per ounce, etc. Similarly, I hear from some who bought at or near the peak of the gold stock rally in mid-2002, and are still waiting to be made whole in spite of the fact that gold is some $25.00 per ounce higher now than it was then. Full Story
As the US stock markets continued their unnaturally serene and placid trading action this week, I found myself once again contemplating sentiment and volatility.
Sentiment, the collective emotions of all market participants, is the prime driver of financial markets over the short-term. Short-term market movements are like an endless sine wave of perpetually warring greed and fear. Speculators as a thundering herd first surge towards a frenzied greedy extreme with great zeal and then suddenly change course in a heartbeat and flee for their lives back towards a black abyss of fear.
The popular metaphor of the herd mentality in the markets is very appropriate, as these shifts in emotional sentiment near extremes of greed or fear, at major interim tops or bottoms, seem to suddenly occur in the majority of traders at the same moment with little or no warning. Like a perfectly synchronized school of individual fish, popular short-term speculation sentiment can rapidly shift in unison among individual speculators. Full Story
The dollar is dropping in Paris. Is it dropping in New York? It depends on whom you talk to.
"New York city residents are turning their pockets inside out to pay higher income taxes, property taxes, subway fares, rents and (if the cabbies get their way) taxi rates," wrote Jim Grant recently. Grant is skeptical of deflation. Almost everywhere he looks, prices are rising.
And yet, bond buyers - generally regarded as the shrewdest of investors - drive bond prices higher almost every day. They see no inflation.
People hardly know what to think. Today, we offer a suggestion. Full Story
The World Gold Council (WGC) launch of a gold exchange traded fund (ETF) promises to revolutionize the gold market. It was filed with the SEC 5/14/03. After reviewing the document and considerable thought, we conclude that the new Gold Equity Share is a highly significant milestone for gold. For the first time in history, investors of all descriptions will be able to invest in physical gold through brokerage firms and other mainstream financial market channels. Previously, investment in gold meant withdrawing money from a brokerage or bank account in order to pay a coin dealer or a bullion dealer. The ETF will eliminate the past inconveniences, uncertainties, and bureaucratic hassles that have long stymied a free flow of capital from retail and institutional investment portfolios into the physical metal.
The WGC Gold ETF will be listed on the NYSE once it has received final SEC approval. Each share will represent 1/10th of one ounce of gold, and at current gold prices, will trade at around $35. More important, each share will be backed by 1/10th of one ounce of physical gold, deposited with Hong Kong Shanghai Bank in London. The gold will be allocated which means that it cannot be lent to bullion dealers and/or used in the gold derivatives trade. The introduction of a gold ETF will finally integrate physical gold with other financial markets and thus end its isolation based on the archaic and creaky conventions subject to which it has historically traded. Full Story
I still infer weakness from the market’s inability to rise significantly into today’s expiration of the May option series. The broad rally at the beginning of the week created seemingly ideal conditions for a short-squeeze that would have keyed off May out-of-the-moneys. Instead, stocks went flat for the next three days, suggesting the Smart Money was not feeling quite confident enough about the underlying tone of the market to chance goosing stocks higher with a short-squeeze. As a result, most issues will likely remain dormant today, pegged to at-the-money strikes (assuming there is no spectacular bullish surprise in the news: “Bin Laden Calls Off Jihad in Latest Message”).
Expiration week can affect the stock market in several discernible ways, but mainly it’s either by holding stocks in check, or by fostering a short-squeeze that propels them sharply higher. In the current circumstances, as I have just noted, it is the damping effect that is being felt. In a somewhat bigger picture, evidence that the bear rally begun in October may have run its course would come if shares remain flaccid early next week. Full Story
Moral Hazard is a fact of life in the business world. Actually, it is more accurately a fact of death, in the business sense. Too much risk and fraud causes businesses to fail. In the insurance industry, a business that is failing might have a sudden fire that burns up all types of bogus inventory and magically the business is saved. Remember Nick Leeson formerly at Barings Bank? He taught the world a lesson when he was allowed to mark his own trades to market, and the miss-marked trades amounted to a cool $833 Million and the collapse of Barings Bank, a 233 year old institution (we wonder if the traders in the $150 Trillion derivatives market have some surprises for the world).
Moral Hazard occurs anytime the system encourages effective fraud or accounting magic that allows those in charge to benefit in the short run, leaving others holding the bag. Think about Enron, WorldCom, Ahold, Tyco, National Century, Salomon, Bludgett, Rigas, Martha, etc. Anyone who reads the press can imagine hundreds, or even thousands, of people whose pictures belong in the post office, but not on stamps. Full Story
The SEC met in a roundtable this morning to discuss regulating the hedge fund industry.
Investors must be demanding it.
Though I don't know any that would throw their money at something without knowing what they're throwing their money at. Personally, I'd like to keep it that way.
But the government insists on breeding sheep, if you will. Investors shouldn't have to do their own due diligence is their motto. Indeed, for their manipulations and monetary schemes to work, they need participants willing to believe they can make the maximum amount of money with a minimum amount of work.
So I'm glad to see the street's top cops producing results!
But how come all the other regulations don't work? How many times are they gonna' rebuild that chinese wall (Wall Street metaphor for regulatory division between research and investment banking conflicts) for instance? How come unscrupulous promotional activities spread to record levels of corruption during the nineties, and on exchanges that were said to be well regulated? Full Story
JUN GOLD (355.10): A subscriber wrote to ask whether the move above 353.70 has ratcheted up our bullishness to a higher threshold. We replied that we are taking it one day at a time, and that any bullish thoughts we might ha rbor are tempered by the prospect of a strong rally in the dollar sometime soon. We gave 95 as major support for the dollar index, but a closer look suggests it could fall to as low as about 92.50 before it finds traction. Regardless, it must be inferred that the dollar is at least close to a bottom of intermediate importance, even if it is not quite there yet. So, with a potentially major bear rally in the dollar imminent, we'd advise you to rein in any thoughts you may have about a test soon of early February's $390 peak. We'd be mildly excited just to see the June contract pierce the high at 361.50 made later that month. If it does so, we'd look for a upward bias that would eventually bring gold up to $390, but over 6-8 weeks rather than precipitously. Full Story
The silver survey for 2002 was released on Monday April 29, 2003. Before I give my summary, there is a brief three page summary from CPM Group at their web site. The key question CPM asks is "How much silver remains in inventories, as the silver market continues to use more silver each year than is being refined from mine output and scrap. It is clear that the amount of silver that is held in bullion has fallen sharply over the past 13 years."
The report goes on to estimate that the amount of unreported bullion inventories is about 275 million ounces at the end of 2002. The reported inventory according to this latest report is 144.4 million ounces which consists of Comex inventory and what is held by U.S. and Japanese Industry. Therefore the total is estimated to be 419 million ounces. As most will recall this is actually higher than the estimate of 403.7 million shown in last years report. Full Story
By: Richard Daughty, The Mogambo Guru - 14 May, 2003
- Starting off with the usual jaundiced look at the Fed's activities, we see that Total Fed Credit actually declined by $7 billion, keeping with their usual battle plan of delivering two punches to the solar plexus of the dollar and people who loan or save money, then a cocking of the arm for another blow.
Moseying over to the banks themselves, they soaked up another incredible $30 billion in government debt for the week. This is probably because the Treasury does not yet have the authority to breach the $6.4 trillion debt limit, and as they must somehow sell a new one-week record of $58 billion in T-notes, they, like little children who have been told that they cannot have a poisonous snake as a pet, have gotten their little friends to keep it for them at THEIR house. But in doing so, the chart of the amount of government debt being soaked up by banks is truly astonishing to look at.
- The dollar hit a new low, as the Greenspan Fed continues to forcefully pound it to utter worthlessness, as they simultaneously pound down interest rate yields to try and ameliorate their egregious policy failures for the last decade or so. Now you would think that when your own government declares, in so many words, that they are sticking you with yields that are less than inflation, and explicitly promising to make them more so, that there would be people in Full Panic Mode. Like me. But, surprisingly, no. Full Story
As a Canadian, the phrase "dollar woes" has, over the past decade, referred to the Canadian Dollar. And it has been justified. In November 1991 the Canadian Dollar hit a high of 0.8906 (nearest futures) against the US Dollar. But by January 2002 a long slide had taken it down to 0.6170 a drop of over 30%. Headlines abounded that the Canadian Dollar was soon destined to fall to 0.50 and even lower. While some politicians railed about the weakness of the dollar and the incompetence of the government business was largely silent. If you were an exporter you had nothing to complain about as the Canadian economy grew and prospered led by exports that were favoured largely because of the cheap Canadian Dollar.
Back in 1974 the Canadian Dollar was even stronger hitting a high over 1.04. But the election of an avowed Quebec separatist government in 1976 sent the dollar on a long tumble to 0.69 by 1986. A high interest rate policy in the late 1980’s helped bring capital flows back to Canada and a rise to the 0.89 level was underway. Full Story
The US puts on a brave face as it says that it's dollar is not in trouble. The Treasury Secretary implies that a weaker dollar is a good thing for exports and to stimulate growth. Yet the US$ is buying 28.8% less in Euro terms than it did year ago. Since as recently as November 2002, the US$ has appreciated by some 16%. Attempts by G8 countries to support the dollar in terms of the official US strong dollar policy have not been successful.
And now there is no longer a war to blame. The world is having to face the reality that the rate of US growth is not sufficient to support the global economy and to keep it away from an extended recession. Asia and Europe and most emerging markets are also in trouble.
And in the US, the normally thriving Disney World Epcot Centre -- usually busy through thick and thin -- I see on TV that many of the rides and day passes are offering desperation discounts for business -- "Buy a day and get a year free." Full Story
Only in such a benighted redoubt of wishful thinking as CNBC’s Fort Lee studio might we expect to find someone prepared to argue that the relationship between risk and reward favors buyers at these levels. As much was made clear yesterday, when shares failed miserably to sustain the previous day’s come-hither trajectory. Having imbibed the lessons of several hundred option expiration weeks over the last thirty years, we can now lay odds that it is all over for the May series. Tuesday was their traditional day to break out, sending shorts into tongue-biting spasms for the remainder of the week. Instead, investors took news of the bombing in Riyadh like a dose of belladonna, reminding us all that our victory over Iraq was the easiest part of America’s peace-making strategy in the Middle East. Full Story
Q Have you ever considered that you might be wrong about silver?
A How about every minute of every single day? I rethink the silver investment equation continually.
Q Some people say you are wrong because what you predict hasn’t happened yet.
A I know some people are disappointed because the price hasn't moved yet, but there are others who are happy. They are still adding to their silver purchases, or buying for the first time, so it's a relative matter. The fundamental situation in silver has become much better than ever before. It would be a mistake to be overly influenced by the timing.
Q Frankly, it gets old hearing it, but I guess you’re saying better early than late?
A Absolutely. That’s the reason I implore people to buy silver now. When we do get the real move in silver, the era of cheap prices will end suddenly and permanently. You have to be early. Full Story
How then can one tell when the deceptions of the past are returning to haunt the current inhabitants of the trusted institutions of man? One method leans on the Jamesian notion of Pragmatism, to wit, when stories of a lack of credibility begin to resonate with the public, the trend towards rising skepticism is on its way. That large elements of the Tech boom were frauds was generally accepted among those with the requisite expertise seems apparent from the intra-office emails of Wall St. analysts, who called these stocks, inter alia, "dogs with fleas." However, the public continued to throw their money at these IPOs until the bubble burst. Now, suitably chastened, the public takes a dimmer view of the machinations of Wall St. This is a trend I expect to continue.
Even the newspaper of record, the NY Times is not immune to losses of credibility, as the recent saga of Jayson Blair attests. More interesting to me will be the continued "traction" of the story with the public. Should this affair prove a one-off, the Times may retain its credibility with its readers. Full Story
So America is at war. For quite some time, it appears. And the primary battlefield may well be financial. If so, there seem to be some interesting strategic approaches that America should employ, given its current position. What is that position? Well, dominant military hyper-power. And dominant financial hyper-power? Well, dominant in the issuance of debt and its closest cousin, the Federal Reserve note. The world's reserve currency.
The Next Battle is Engaged
So who are the enemies? By tipping their positions so clearly, the Retro-Socialists surely thought that the alignment of their welfare state with the Islamic radical would compromise America's hegemony. Not so far, and this position has weakened considerably with the military outcome in Iraq. Now, the decline in the US dollar is a step into the battle field of competitive currency devaluation. Full Story
We received a note yesterday from a Colorado subscriber who sees Denver’s rapidly unfolding real estate bust as a warning of potentially far bigger troubles for the entire U.S. He notes that residential building permits for the metro Denver area were down 30% in March; that existing-homes-for-sale inventory is at an all time record; and that closings in the first quarter were down 13% from last year. “Denver is usually considered to be a demographic bellwether for the country, so I'm sure many other cities have the same housing/construction glut. I'm putting my arm around the shoulder of the housing industry and sadly waving good-bye to the housing bubble.”
Perhaps our correspondent will be right. But gloomy as we are on the economy as a whole, we hesitate to infer that Denver’s incipient real estate disaster will necessarily play out nationwide, or very soon. One reason is that Denver’s economy is probably not so typical that it should be regarded as a true bellwether. Granted, the region is more economically diverse than it was before the oil-patch bust of the late 1980s. Unfortunately, the job market is heavily dependent on a relative handful of employers who have been hit especially hard by this never-ending recession, including Qwest, United and, in my back yard, Sun Microsystems. On further reflection, although a real estate bust locally remains an imminent po ssibility, we must allow for the possibility that it will take more years than most pessimists are able to imagine for a softening national market to turn into disaster. Full Story
As the USD continues its death spiral, down almost 2% for the last week, the precious metals continue to rally, faithfully acknowledging their negative correlation to this currency. Gold had a splendid week, up $7.60, as good buying interest was seen from diverse sectors. Silver, which had preceded the rally in gold over the past few weeks, was virtually unchanged. Platinum prices rocketed skyward by $37, as both commercial and speculative buying reentered this market, especially from the Far East. Palladium was up a smidgeon, $1.50 for the week, as this market seems content to chart out a longer-term bottom.
As noted above, the gold market has had one, and only one, significant influence of late, and has been a true reflective image of the foreign exchange markets. Since April 1st of this year, the USD has fallen by 4.44% (using the Dollar Index) to date, as gold prices have risen by 4.36% during this time period. With the wild speculative rush into gold seen during the weeks preceding the Iraqi War now over, with the investment gun-slingers and cowboys having come and gone, the gold market has now reverted back to its original long-term trend, a secular bull market, due to its appealing fundamental considerations. Full Story
The long-term chart clearly shows that the USDJPY exchange rate is in the process of completing a head-and-shoulder reversal and that the pressure is on the down-side.
We recommended to buy the JPY against USD on November 7, 2002, at 121.83. The technical argument for buying JPY is however even stronger today.
Once we break the neckline decisively, the way will be open to retest the low of January 2000 at around 100. It will of course not happen over night. But market-movements sometimes are quick and sharp as is demonstrated when the USD collapsed in the autumn of 1998 (see arrow).
The Japanese Central Bank will naturally try to stop the ascent of the Yen and it is rumoured that it is intervening secretly. It is however well-known that market forces will win in the end. Full Story
It is a rare day I go out for lunch while I am in Dallas. Today was one of them. The occasion was a visit by long time Café member and GATA supporter Bill Stephens (an investment banker from Houston), who was in town for a special occasion with his beautiful wife Madelyn. Joining Bill and me was the brilliant Nelson Hultberg. Three hours went by in a blink.
The gold war is on with all its fury. Immediately after the close last evening, The Gold Cartel continued their late Thursday Comex selling by attacking bullion again. By the time the Japanese showed up, gold was down as much as $2.60. To give you some idea of how intense the cabal’s effort was and is, note what John Brimelow says below:
"Comex volume soared 50% on the day in the final half hour on Thursday as gold was forced $1.50 off the high."
That was The Gold Cartel at work!
No one who wishes to maximize profits would unload such a barrage of selling to cap a market and take the price lower. Normal free market sellers would put in orders on a scale up basis, especially when the buying is so FEROCIOUS. We know the buying was that substantial because the open interest went up a hefty 6,093 contracts. That is the first significant increase for the entire move up thus far and indicates the specs are moving in on the long side. All of that has been laid out in recent MIDAS commentary. Full Story
The statement issued by the Fed following last week's monetary policy meeting included this gem:
"...the Committee perceives that over the next few quarters the upside and downside risks to the attainment of sustainable growth are roughly equal. In contrast, over the same period, the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level."
When the Fed talks about inflation it doesn't mean inflation in the correct sense (an increase in the money supply), it is referring to rising prices for goods and services. Therefore, Greenspan and Co. appear to be worried about a substantial fall in prices. The question is, why? After all, computer prices fall substantially every year, yet no one complains about being able to buy better computers for less money and the computer industry hasn't collapsed. Why wouldn't it be good, rather than bad, if prices throughout the economy mimicked computer prices and fell every year? Full Story
Revolutions throughout history have always been initiated by a small minority of highly dedicated contrarians. When any given society has become tyrannical and in need of reform, the overwhelming majority of that society's citizens will be apathetic (and sometimes downright antagonistic) to any cause that upsets their routine in life. This phenomenon is called inertia, and it is one of the more debilitating forces of human existence that weighs upon us all. Contrarians and rebels refuse to let this force govern them. Establishment oriented humans always succumb to its control.
In the last two weeks since the writing of "Gold Money and Equal Tax Rates," I have received scores of emails from enthusiastic supporters about its theme of forming a third party to challenge the Demopublicans. And I have also received numerous emails from those who were quite negative and cynical regarding such a third party. Interspersed amidst this support and negativity were a lot of thoughtful questions on how such a challenge of the Demopublicans could be brought about, along with suggestions for improving the plan that I had outlined. What follows is an attempt to clarify the third party plan further, and answer the more important objections that have been put forth. Full Story
Despite the POG moving nicely to $348.30, the price in Australian dollars has suffered as a result of our rising currency against the greenback. After enjoying the $600 level and beyond the AUD gold price is treading water just over $540oz.
During the 1995/1996 gold bull market, our dollar was in the 80c range, yet the more speculative issues performed strongly prior to the bubble bursting in 1997 when the RBA announced they were selling gold. Whilst it is difficult to forecast the 80c level being reached again after spending some time sub 50c, the current gold and interest rate climate would well be conducive towards a similar performance across the board.
Our major and mid-cap gold producers whilst seeing their share prices stabilise after some stomach churning falls are now being poleaxed with waves of institutional selling which manages to overwhelm stocks after the 20 minutes of madness after market open have passed. Full Story
This week we take a look at the dollar and global trade imbalances. I will use the draft chapter from my book-in-progress on the topic.
I need to thank so many of you for your book title suggestions. We have had almost 1,000 proposed titles come in over the last two weeks. Some of you put in a great deal of thought, did cover designs and detailed analysis. I wish I could write each one of you personally, but I need to keep writing on the book. I want to finish this month.
Let's go straight to the book.
King Dollar and the Guillotine
"Whoever you are, I have always depended on the kindness of strangers." (Blanche Dubois from Tennessee Williams' A Streetcar Named Desire.)
The world is in the midst of a major transformation of the global economy. This realignment will mean that a number of trends that have been in place for many years are going to be reversed. These changes have the potential to be quite painful for persons and businesses involved, not only in the US but those abroad as well. Full Story
+ GG (11.26): We hold 400 shares for an average 7.20. Goldcorp looks higher, but not much. The stock stalled recently at a hidden pivot at 11.40, but there are three more above -- at 11.57, 11.61 and 11.83 – if it should get through. There is also a conventional resistance near 11.50 from a prior peak, so the stock has its work cut out for it over the near term. Even if it blows through all of the obstacles noted above, GG will still face daunting resistance between 12.50 and 13.50.
$ JUN GOLD (348.90): Over the next couple of days, there are two hidden pivots that we can use as targets: 351.90 and 353.70. If the first is exceeded by more than 0.10, you can infer the second will be reached. Either is short-able for a quick turn, but we’d suggest risking no more than 0.30 on the initial stop-loss. Full Story
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