Friday, February 24, 2006


Oil Prices Lead Precious Metals Higher

Reuters has the latest on gold and oil. "Gold bullion shot up 1.7 percent to a two-week high in late trade on Friday, supported by explosions and gunfire at a Saudi Arabian crude oil facility and surprisingly weak U.S. economic data, dealers said. Saudi Arabia's oil minister said the kingdom's oil and gas production was unaffected by an attempt to storm the huge Abqaiq oil facility."

"Nevertheless, oil had climbed nearly 4 percent to $62.75 a barrel in late trading in New York. Spot gold was at its highest since Feb. 10, at $558.60/559.50 an ounce, up from $548.40/549.30 in New York late on Thursday and $550 before news of the attack."

"'The combination of jumping oil prices and weak U.S. economic data has triggered an end-of-week rally in the precious metals complex, with gold rising to just shy of $559,' said James Moore, analyst with Gold has long been considered a safe haven for investors in times of uncertainty."

"'The explosion reports stopped people selling across precious metals, which has provided support,' one London dealer said. Separately, the U.S. government said volatile durable goods orders posted their biggest drop in 5-1/2 years last month, and the 10.2 percent fall far surpassed expectations of a 1 percent drop."

"In other precious metals, platinum rose to $1,033/1,037 an ounce from $1,017/1,021 on Thursday, while silver surged to $9.71/9.74 from $9.49/9.52. Palladium firmed to $285/289 an ounce, compared with 283.50/287.50."

It takes very little to make one run for cover. It just goes to show how jittery the market place is.When bombs are going off it's much safer to hide behind a wall of "metal" as opposed to one of "paper".
I read the other day that there is only 500M ounces of .999 silver in the world, the new silver ETF will need about 100+ ounces.
Yeah, if the gold ETFs continue accumulating at their current rate and the silver ETF is at all successful then the "legal hoarding" scenario could be a real possibility. Such a self-reinforcing bubble could only be arrested by massively increased production or government intervention. Either would take a while, so it could be a rocket ship ride.

Although it's bullish for PMs, all this trouble around the world is a bit much. I can't help but think that everything's going to hit at once... housing bubble, hedge fund collapse, stock market rout, terrorist attacks, Gulf War III, etc. Circumstances are reaching rather ominous proportions for a world ill-equipped to deal with them.
John: That didn't seem right, but I found something that backs that up.

"The situation in silver is even more dramatic. Near the end of World War II, since America had been a large silver producer, and had also accepted silver as payment for war supplies, the United States Treasury (including circulating coin) and the US Strategic Silver Reserve held close to 10 billion ounces of silver. Since then, silver has become an essential component in thousands of modern products, and even though the amount of silver mined each year has grown, the demand for silver has grown so much faster, that most of those 10 billion ounces of silver reserve have been used up. As a matter of fact, the ongoing availability of silver from reserves has tended to keep the prices for silver low, and so the global mining industry has not made large new investments related to silver. In essence, the world has been experiencing a shortage of silver for several decades, and this has been hidden by the consumption of reserves. Now, those reserves are gone. Silver known to exist in vaults is only about 150-500 million ounces ... 2% to 5% of the reserves we once had. Enough to cover a couple short years of typical silver deficit, but that is not enough time for the global mining industry to build mines to produce an extra 200 million ounces per year of silver. A shortage of silver is now eminent. Certain silver investors have recognized the emergency situation in silver several years ago."
Time to reignite the great Gold vs. Silver debate?
How come the national debt has been over the statutory limit for more than a month? Isn't anybody minding the Treasury Department? Good question. Here's the answer. As of Thursday the debt was $64 billion over the limit but Congress is in recess and only Congress can raise the debt limit, which is must do very soon. In the meantime, Treasury has "borrowed" billions from federal pension funds and must repay the money when Congress sets the new debt ceiling. We're guessing they'll raise it about $700 billion.
Gold is Money... What I think is a worth while read.
Slightly OT, but I'm a little confused:

There's been some discussion here about the new Iranian oil bourse and its use of the Euro (and the threat this presents to the USD).

In Ron Paul's speech, though, he mentions that OPEC agreed to deal only in dollars, which implies that the oil offered on the new exchange would ultimately still have some dollar connection.

How does one reconcile these two apparently contradictory statements? Will the Iranian bourse offer non-OPEC oil (e.g., from small Asian states)?

Ron was speaking historically -- those events occurred in the late 60's / early 70's.

Like most cartels, OPEC exists to protect its market and profits. Therefore it sets production quotas designed to maximize profits while maintaining client's dependence. The quotas are voluntary and often violated; otherwise, there's no real obligations that I am aware of.
I clipped this from Chuck Butlers Daily Pfennig... I had not heard of Norways disire for and Oil Bourse!

"March also brings us the Iranian Oil Bourse that will buy and sell oil for euros only... Now, there's word that Norway wants to start their own Oil Bourse, too! Bourse Director Sven Arild Andersen is fed up with Norwegian oil having to be traded in London and wants to have a commodities and energy bourse in Norway. Andersen is of the opinion that Norwegian oil must be traded in euros, which can be advantageous for international customers".

I can't believe currency traders aren't all over this like a cheap suit! Oh well... I'm doing my best to educate them! HA!
On the topic of the Iranian Oil Bourse, here is an opinion article expressing a number of reasons why the IOB won't become a major factor:

Any comments on the author's arguments? It's my belief that the USD retains its reserve currency status largely because oil is traded in dollars. But I'm still not convinced that the IOB will be the trigger for a major slide in the USD... there are many other reasons the USD slide will continue (e.g. loss of confidence in our monetary policy, M3 no longer published, twin deficits, ...)

I'll go out on a limb, and venture a guess that March 20th will pass without much impact on the price of PM or the USD. Even further, I doubt that much impact will be seen in the immediate weeks after trading begins (if it does begin at all).

Agree? Disagree?

I am short on the USD, so don't mind being wrong in my prediction!
I disagree with the writer of the article. The guy addresses the IAB threat in purely economic terms, not political ones, thereby totalling missing the point.

IMHO, the IAB will impact the USD. Maybe not much at first, but if it simply survives for any period of time it'll be the beginning of the end. Again, the driving factors here are political (and even religious), not economic, so it will survive.

There's a unique confluence of outside political interests involved, too. General American antipathy, European ambition, Asian reserve diversification, etc.

The White House knows this, too. Despite WMDs, etc., we didn't invade Iraq until Saddam started his own non-USD bourse.
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