Friday, May 19, 2006
Correction Tests Metal Bulls
Forbes has the latest currency news. "The dollar rose against most major currencies Friday, rebounding from a slide that followed a drop in a widely watched barometer of U.S. economic activity. The euro fell to $1.2772 in late New York trading, well below the $1.2829 it bought in New York late Thursday. The British pound also slipped to $1.8780 from $1.8908."
"The dollar strengthened against the Japanese currency, climbing to 111.66 yen from 110.89 yen. The dollar bought 1.2259 Swiss francs, up from 1.2081 late Thursday, and 1.1197 Canadian dollars, down from 1.1206."
"Little new data was produced to move markets on Friday, but the dollar appeared to benefit from movements in other markets, according to Dan Katzive, a currency strategist at UBS AG."
"'The dollar's rally doesn't seem to be driven by any change in fundamentals,' he said. 'Rather, it seems caught up in the reduction of risk positions in other markets like metals and emerging markets. On the whole, the markets are still bearish on the dollar.'"
"Gold futures tumbled by more than $23 US an ounce Friday as the U.S. dollar gained strength against other major currencies and investors shifted assets out of the precious metal. The June futures contract for gold fell $23.40 to close at $657.50 US an ounce in New York trading. Just last week, gold was trading at a 26-year high of $732 US an ounce."
"On the TSX Friday, Barrick Gold shares dropped 12 cents to $34.09. Goldcorp fell $1.09 cents to $33.40. Despite the drop, many analysts remain bullish on bullion and are still forecasting the price will hit $800 US or higher by the end of the year."
"Commodity prices had their biggest weekly drop in more than 25 years, led by metals and grains, on speculation that higher interest rates will erode the appeal of copper, gold and silver as alternative investments. 'The speculators are piling out of the metals,' said James Vail, who manages $700 million in natural-resource stocks. 'There's been so much money made in this sector that people are trying to protect themselves. There was skepticism on the upside, and now there's panic on the downside.'"
"The Philadelphia Stock Exchange Gold & Silver Index of 16 companies, including Newmont Mining Corp., fell 12 percent for the week, the biggest drop since July 2002. Toronto-based Goldcorp Inc. led the declines, down 20 percent for the week, followed by New Orleans-based Freeport McMoRan Copper & Gold Inc., down 17 percent."
"Palladium fell about 6 percent, silver shed about 1.3 percent, and spot platinum also trekked south on liquidation in the metals complex and commodities generally. Silver prices also followed gold and fell to a three-week low of $12.11 an ounce, down 3.6 percent from $12.58/12.68 in the U.S. market. It was last quoted down 10 cents at $12.38/12.48."
"Palladium was the worst hit among the group, falling to a five-week low of $330. It last fetched $338/343 an ounce, versus $356/361 previously. Platinum dropped as low as $1,280 an ounce before marginally rising to $1,281/1,289, compared with $1,300/1,308 in New York. It had hit a record high of $1,336 this week."
"Platinum had not fallen as sharply as other precious metals because of positive market fundamentals, dealers said."
"After more than three months of a marathon run, the gold market took this week to finally begin a decent correction,' said Jon Nadler, analyst with bullion dealer Kitco. 'The market had obviously gotten ahead of itself and was overdue for a pullback of some magnitude,' he said."
"'It's a combination of options and technical-related selling. Potentially there is scope now for further pressure back even towards $600,' said James Moore, precious metals analyst at TheBulliondesk.com. 'It's a short-term correction. We are still firmly in a bull trend as there are far too many factors supporting gold.'"
"Traders said large deficits in the U.S. economy, inflation concerns, the overall weak dollar sentiment, tension in the Middle East and a slow growth in mine production were expected to provide support to the market. South Africa, the world's biggest gold producer, saw output fall by 10.9 percent to 68 tonnes during the first quarter of 2006 from last year due to worker holidays and restructuring, the Chamber of Mines said."
"The dollar strengthened against the Japanese currency, climbing to 111.66 yen from 110.89 yen. The dollar bought 1.2259 Swiss francs, up from 1.2081 late Thursday, and 1.1197 Canadian dollars, down from 1.1206."
"Little new data was produced to move markets on Friday, but the dollar appeared to benefit from movements in other markets, according to Dan Katzive, a currency strategist at UBS AG."
"'The dollar's rally doesn't seem to be driven by any change in fundamentals,' he said. 'Rather, it seems caught up in the reduction of risk positions in other markets like metals and emerging markets. On the whole, the markets are still bearish on the dollar.'"
"Gold futures tumbled by more than $23 US an ounce Friday as the U.S. dollar gained strength against other major currencies and investors shifted assets out of the precious metal. The June futures contract for gold fell $23.40 to close at $657.50 US an ounce in New York trading. Just last week, gold was trading at a 26-year high of $732 US an ounce."
"On the TSX Friday, Barrick Gold shares dropped 12 cents to $34.09. Goldcorp fell $1.09 cents to $33.40. Despite the drop, many analysts remain bullish on bullion and are still forecasting the price will hit $800 US or higher by the end of the year."
"Commodity prices had their biggest weekly drop in more than 25 years, led by metals and grains, on speculation that higher interest rates will erode the appeal of copper, gold and silver as alternative investments. 'The speculators are piling out of the metals,' said James Vail, who manages $700 million in natural-resource stocks. 'There's been so much money made in this sector that people are trying to protect themselves. There was skepticism on the upside, and now there's panic on the downside.'"
"The Philadelphia Stock Exchange Gold & Silver Index of 16 companies, including Newmont Mining Corp., fell 12 percent for the week, the biggest drop since July 2002. Toronto-based Goldcorp Inc. led the declines, down 20 percent for the week, followed by New Orleans-based Freeport McMoRan Copper & Gold Inc., down 17 percent."
"Palladium fell about 6 percent, silver shed about 1.3 percent, and spot platinum also trekked south on liquidation in the metals complex and commodities generally. Silver prices also followed gold and fell to a three-week low of $12.11 an ounce, down 3.6 percent from $12.58/12.68 in the U.S. market. It was last quoted down 10 cents at $12.38/12.48."
"Palladium was the worst hit among the group, falling to a five-week low of $330. It last fetched $338/343 an ounce, versus $356/361 previously. Platinum dropped as low as $1,280 an ounce before marginally rising to $1,281/1,289, compared with $1,300/1,308 in New York. It had hit a record high of $1,336 this week."
"Platinum had not fallen as sharply as other precious metals because of positive market fundamentals, dealers said."
"After more than three months of a marathon run, the gold market took this week to finally begin a decent correction,' said Jon Nadler, analyst with bullion dealer Kitco. 'The market had obviously gotten ahead of itself and was overdue for a pullback of some magnitude,' he said."
"'It's a combination of options and technical-related selling. Potentially there is scope now for further pressure back even towards $600,' said James Moore, precious metals analyst at TheBulliondesk.com. 'It's a short-term correction. We are still firmly in a bull trend as there are far too many factors supporting gold.'"
"Traders said large deficits in the U.S. economy, inflation concerns, the overall weak dollar sentiment, tension in the Middle East and a slow growth in mine production were expected to provide support to the market. South Africa, the world's biggest gold producer, saw output fall by 10.9 percent to 68 tonnes during the first quarter of 2006 from last year due to worker holidays and restructuring, the Chamber of Mines said."
# posted by Ben Jones @ 2:02 PM 
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The prevailing theory that the US$ was the reason for todays sell of doesn't seem right. It barely rose compared to the recent loses.
The idea of the Fed raising rates is also interesting. But what if the FF rate is increased to 6.5%? That's not high from a historical viewpoint.
It could be that statements from Fed people this week were intended to talk down gold. How likely is another 1 or 2% increase? At any rate, these episodes are interesting and I hope readers will post their thoughts on where we are headed this weekend.
The idea of the Fed raising rates is also interesting. But what if the FF rate is increased to 6.5%? That's not high from a historical viewpoint.
It could be that statements from Fed people this week were intended to talk down gold. How likely is another 1 or 2% increase? At any rate, these episodes are interesting and I hope readers will post their thoughts on where we are headed this weekend.
Schiller: "It's the same phenomenon," Shiller said. "When you have something that has glamour value, it opens up the possibility of a speculative bubble. You can't have a speculative bubble if there isn't a story."
On the other hand, you can't have a legitimate new market dynamic -- a rise, or fall in prices which vastly outweighs the typical moves of a market cycle -- without a story either. What so many analysts forget, is that legitimate market shifts do happen. Industries do rise (or plummet) in global importance. Just because something has attracted increased attention, doesn't mean its a bubble. In the 80's, software companies became the hottest thing since sliced bread -- almost overnight. No one ever called it a bubble, because they still are.
On the other hand, you can't have a legitimate new market dynamic -- a rise, or fall in prices which vastly outweighs the typical moves of a market cycle -- without a story either. What so many analysts forget, is that legitimate market shifts do happen. Industries do rise (or plummet) in global importance. Just because something has attracted increased attention, doesn't mean its a bubble. In the 80's, software companies became the hottest thing since sliced bread -- almost overnight. No one ever called it a bubble, because they still are.
thejdog,
600oz's of gold??? You, sir, are a rich man!
john in va,
Stick around... I should present my case for depression & hyperinflation sometime this weekend. Lots to cover...
600oz's of gold??? You, sir, are a rich man!
john in va,
Stick around... I should present my case for depression & hyperinflation sometime this weekend. Lots to cover...
Maybe I didn't make my analogy clear: In the early 80's there *was* no Silicon Valley phenomenon, and then almost overnight, there was. An entire industry sprang up extremely rapidly, became the darlings of Wall Street, and today represents a significant portion of GNP and our balance of trade. Yes, if you look at equity valuations (your charts) -- they spiked around 2000 like everything else in the late nineties equity bubble -- and haven't done much since. But that's a micro-level metric compared to the existence vs. non-existence of a trillion dollar industry that sprang up in an extraordinarily short period of time.
(I used to own a private software development co, btw).
My point was really directed towards Schiller's comment that "When you have something that has glamour value, it opens up the possibility of a speculative bubble. You can't have a speculative bubble if there isn't a story". To which I say: that is only sometimes true. Contrary to some hard lessons learned in the dot-com years, paradigm-shifts really do happen, and actually many have happened in our own lifetimes. The "bubble" word seems to get tossed carelessly at every boom in financial markets. While many of those booms likely are bubbles, many represent true (and lasting) industrial and economic shifts.
(I used to own a private software development co, btw).
My point was really directed towards Schiller's comment that "When you have something that has glamour value, it opens up the possibility of a speculative bubble. You can't have a speculative bubble if there isn't a story". To which I say: that is only sometimes true. Contrary to some hard lessons learned in the dot-com years, paradigm-shifts really do happen, and actually many have happened in our own lifetimes. The "bubble" word seems to get tossed carelessly at every boom in financial markets. While many of those booms likely are bubbles, many represent true (and lasting) industrial and economic shifts.
commodities are just coming off an all-time low just a few years ago, this thing has another 10 years or more to run. china isn't just going to stop industrializing. how can it be a bubble when hardly an new mines have been opened? when the public is not in? we just go new etfs. this thing has a long ways to go. we're only 5 years into it. china is the new paradigm, a long with India and the BRIC countries.
since we believe here in housing fundamentals and how they are in a bubble, where are the fundamentals that show commodoties are in a bubble? they certainly aren't there for gold and silver.
since we believe here in housing fundamentals and how they are in a bubble, where are the fundamentals that show commodoties are in a bubble? they certainly aren't there for gold and silver.
gtivbqdoesn't anyone remember the Plaza Accord? from the NYT editorial page.
Gambling on a Weaker Dollar
Published: May 20, 2006
For some time now, shortsighted lawmakers in Congress have been threatening China with tariffs for what they call its unfair currency practices. The Bush administration, to its credit, has generally resisted the protectionist rant, most notably by refusing to brand China a "currency manipulator" in an official report to Congress last week.
China responded to the administration's responsible policy and diplomatic courtesy this week when it loosened, a bit, the tether that binds the Chinese currency, the yuan, to the dollar. A stronger yuan implies a weaker dollar, as does the general strengthening so far this year of the euro and the yen. By making foreign goods sold here more expensive and American goods sold abroad cheaper, a weaker dollar would, in theory, eventually help reduce the United States' huge trade gap.
The problem is this: unless a falling dollar is paired with reductions in the federal budget deficit, it could do more harm than good by driving up interest rates, perhaps sharply. That's because the foreign investors who finance the administration's "borrow as you go" budget are likely to demand higher returns to invest in a depreciating dollar.
But if budget deficits declined over the long run, the government's reduced need to borrow would help keep interest rates low as the dollar depreciated. Then, after a lag, the falling dollar would shrink the trade deficit without risking big increases in interest rates in the process.
Unfortunately, the incessant tax cutting of the past five years precludes any serious attempt to reduce the budget deficit. So to keep interest rates in check as the dollar falls, the administration would have to persuade investors not to believe what they see: a dollar that is declining even as the United States does nothing to curb its borrowing.
That would be a difficult trick even for a Treasury Department that commanded respect. It will be especially difficult for Mr. Bush's Treasury team, which has suffered a diminution of esteem and credibility.
The Bush tax cuts also make it harder for Americans as a nation to bail themselves out of the trade deficit by saving more. Higher personal savings would allow the government to finance its budget deficit without outsized foreign borrowing — another safe route to a cheaper dollar and a smaller trade gap. But the Republicans who control Congress let a tax credit for low-income savers expire this year to free up room in the budget for nearly $70 billion in additional tax cuts for high-income Americans over the near term.
That tax cut bill, signed into law this week by President Bush, also commits an estimated $53 billion through the middle of the century to help those same high earners shift their existing savings into tax shelters. This adds not one cent of new savings and presages big deficits far into the future.
A weakening dollar, on top of intractable budget deficits and a chronic savings shortfall, is a recipe for recession. The question now is whether the country will change direction in time. The portents are not good.
Gambling on a Weaker Dollar
Published: May 20, 2006
For some time now, shortsighted lawmakers in Congress have been threatening China with tariffs for what they call its unfair currency practices. The Bush administration, to its credit, has generally resisted the protectionist rant, most notably by refusing to brand China a "currency manipulator" in an official report to Congress last week.
China responded to the administration's responsible policy and diplomatic courtesy this week when it loosened, a bit, the tether that binds the Chinese currency, the yuan, to the dollar. A stronger yuan implies a weaker dollar, as does the general strengthening so far this year of the euro and the yen. By making foreign goods sold here more expensive and American goods sold abroad cheaper, a weaker dollar would, in theory, eventually help reduce the United States' huge trade gap.
The problem is this: unless a falling dollar is paired with reductions in the federal budget deficit, it could do more harm than good by driving up interest rates, perhaps sharply. That's because the foreign investors who finance the administration's "borrow as you go" budget are likely to demand higher returns to invest in a depreciating dollar.
But if budget deficits declined over the long run, the government's reduced need to borrow would help keep interest rates low as the dollar depreciated. Then, after a lag, the falling dollar would shrink the trade deficit without risking big increases in interest rates in the process.
Unfortunately, the incessant tax cutting of the past five years precludes any serious attempt to reduce the budget deficit. So to keep interest rates in check as the dollar falls, the administration would have to persuade investors not to believe what they see: a dollar that is declining even as the United States does nothing to curb its borrowing.
That would be a difficult trick even for a Treasury Department that commanded respect. It will be especially difficult for Mr. Bush's Treasury team, which has suffered a diminution of esteem and credibility.
The Bush tax cuts also make it harder for Americans as a nation to bail themselves out of the trade deficit by saving more. Higher personal savings would allow the government to finance its budget deficit without outsized foreign borrowing — another safe route to a cheaper dollar and a smaller trade gap. But the Republicans who control Congress let a tax credit for low-income savers expire this year to free up room in the budget for nearly $70 billion in additional tax cuts for high-income Americans over the near term.
That tax cut bill, signed into law this week by President Bush, also commits an estimated $53 billion through the middle of the century to help those same high earners shift their existing savings into tax shelters. This adds not one cent of new savings and presages big deficits far into the future.
A weakening dollar, on top of intractable budget deficits and a chronic savings shortfall, is a recipe for recession. The question now is whether the country will change direction in time. The portents are not good.
Anyone expecting politicians to "do the right thing" is delusional, which is high on my hit parade of reasons why we're headed for a depression.
You know, World War I was universally known as "The Great War" until World War II came along. Guess the name "The Great Depression" is living on borrowed time.
You know, World War I was universally known as "The Great War" until World War II came along. Guess the name "The Great Depression" is living on borrowed time.
It will take some time or a large event before the mass exodus occurs.
Agree completely. That's why PMs are ultimately going much higher.
Agree completely. That's why PMs are ultimately going much higher.
(China's not the new paradigm, john_law; China is the new bubble economy.)
china just isn't going to stop industrializing, nor the whole BRIC area. that doesn't mean that commodities won't fall. it also doesn't mean they are a bubble. where are the fundamentals of a commodity bubble? it doesn't show up in the real gold or silver price. it doesn't show up in the dow/gold or dow/silver ratio. sure some commodities may be overvalued, but they're probably closer to 87(for stocks) than 80(for metals). if they were a bubble, that implies the end of a long bull market. this thing just got started around 2000. the public isn't in on this. how many people do you think hold futures accounts and own zinc? how many own the gold ETF? my take is the smart money is only just now getting in.
china just isn't going to stop industrializing, nor the whole BRIC area. that doesn't mean that commodities won't fall. it also doesn't mean they are a bubble. where are the fundamentals of a commodity bubble? it doesn't show up in the real gold or silver price. it doesn't show up in the dow/gold or dow/silver ratio. sure some commodities may be overvalued, but they're probably closer to 87(for stocks) than 80(for metals). if they were a bubble, that implies the end of a long bull market. this thing just got started around 2000. the public isn't in on this. how many people do you think hold futures accounts and own zinc? how many own the gold ETF? my take is the smart money is only just now getting in.
No apologies necessary, I haven't made my case yet. That case will not be vague, and won't be based on any "expert" opinions.
BTW, I generally avoid "quote" battles, since you can always find someone out there with respectable credentials to support *any* position. Did you know a survey of economists in 2000 showed almost unanimous belief in the "new economy" and continued market gains?
p.s.: My dad had a favorite (albeit rude) line: "Opinions are like assholes; everyone's got one and they all smell!".
BTW, I generally avoid "quote" battles, since you can always find someone out there with respectable credentials to support *any* position. Did you know a survey of economists in 2000 showed almost unanimous belief in the "new economy" and continued market gains?
p.s.: My dad had a favorite (albeit rude) line: "Opinions are like assholes; everyone's got one and they all smell!".
50% overvalued only 5 years in? I think not.
you can calulate if gold and silver are good investments by tracking the dow/gold and dow/silver ratios. supply and demand. the fact that we just went through a 20 year bear market in commodity prices. is 5 years a bubble? those are the fundamentals. most commodities are still well below their inflation-adjusted highs. if gold were $2000 an ounce and silver $150 an ounce, you'd have a point. not until then though will I think it's a bubble.
insiders in the materials sector are probably selling because they've spent most of their career in a falling commodities prices era. they don't believe. only now have pension funds gotten into commodities.
just look at the chart from marc faber's article. commodities just made an almost ALL-TIME bottom. you don't cure underinvestment in a few years. this is going to take a decade or more.
"Even if we assume that the long-term commodity price cycle did turn up in 2001, we should also be prepared to occasionally see 50% declines in the prices of individual commodities within a long-term up-cycle."
Booming Commodity Prices, but…
when oil is $175, gold is $2500, silver at $125 and the dow/gold ratio is under 5, then I'll join you in calling a bubble. today, the grains are still at very depressed prices.
for instance. today the dow/gold ratio is at 17, the two highs in the dow/gold ratio, besides the last high in 1999, were at 18 in 1929 and 28 in 1966.
another good example:
commodities all-time low
you can calulate if gold and silver are good investments by tracking the dow/gold and dow/silver ratios. supply and demand. the fact that we just went through a 20 year bear market in commodity prices. is 5 years a bubble? those are the fundamentals. most commodities are still well below their inflation-adjusted highs. if gold were $2000 an ounce and silver $150 an ounce, you'd have a point. not until then though will I think it's a bubble.
insiders in the materials sector are probably selling because they've spent most of their career in a falling commodities prices era. they don't believe. only now have pension funds gotten into commodities.
just look at the chart from marc faber's article. commodities just made an almost ALL-TIME bottom. you don't cure underinvestment in a few years. this is going to take a decade or more.
"Even if we assume that the long-term commodity price cycle did turn up in 2001, we should also be prepared to occasionally see 50% declines in the prices of individual commodities within a long-term up-cycle."
Booming Commodity Prices, but…
when oil is $175, gold is $2500, silver at $125 and the dow/gold ratio is under 5, then I'll join you in calling a bubble. today, the grains are still at very depressed prices.
for instance. today the dow/gold ratio is at 17, the two highs in the dow/gold ratio, besides the last high in 1999, were at 18 in 1929 and 28 in 1966.
another good example:
commodities all-time low
here is a great chart that shows stocks and commodities switching places for about 18 years.
Stocks vs. commodities 1871-2004
Stocks vs. commodities 1871-2004
Interesting article on attempting to value PMs...
Why the Global Financial System is About to Collapse
Why the Global Financial System is About to Collapse
I don't know how those research people or people like david morgan get their price targets. I guess you could do a historic average of the dow/gold ratio or whatnot. you'd have to see if mines are being opened, what supply is in stockpiles and so forth.
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