Thursday, May 18, 2006

 

'Precious Metals In A Dilemma'

The Associated Press has the trading numbers for Thursday. "Gold and silver prices slipped Thursday, despite a sharp rise in U.S. jobless claims and the dollar's drop against the euro. However, without the effect of a partial government shutdown in Puerto Rico, jobless claims would have dropped from the previous week, the Labor Department said, suggesting strength in the job market."

"June gold futures settled $11 lower at $687.80 an ounce on the New York Mercantile Exchange. July silver fell to a low of $12.50 an ounce Thursday, before settling at $12.52 an ounce, down 72 cents from a day earlier. Platinum settled below the key $1,300-an-ounce level for the first time since Monday. July platinum closed $18.60 lower at $1,297.80 an ounce. Palladium also ended down at $372.50 an ounce, a loss of $10.60 on the day."

"The dollar fell against other major currencies Thursday, with the euro buying $1.2829 in late afternoon New York trading, up from $1.2741 late Wednesday."

"'Precious metals appear to be in a dilemma as to whether to continue their (welcome) correction or simply turn around and climb higher as dollar difficulties continue to undermine confidence and bolster defensive posturing,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com. 'The consensus among traders remains that several sustained closings above $690 to $700 might be required to resume gold's climb beyond the $730 and $750 marks,' he said."

"'Long-term gold investors are apparently undeterred, as they watch the sad saga of the U.S. dollar unfold while the yen and euro bask in a glow of strength,' said Nadler. 'Stock market weakness could also add to gold's current resilience as will, no doubt, the Iranian rejection of the terms of appeasement it was recently offered,' he said, referring to the recent European Union offer of certain incentives in exchange for Iran's halt of nuclear activities."

"Overall, 'the persistent impression among investors...is that inflation is making an unwelcome return in the near future and thus portfolios need the protection offered by counter-cyclical assets,' said Nadler."

A report from PIMCO. "The drop in oil and metal prices this week has raised fears that a speculative bubble in commodities is bursting, but giant U.S. fund manager PIMCO says fundamentals will hold up the asset class. 'In considering commodities, we need to take a more strategic view instead of trying to predict in very short term what prices might give,' said Bob Greer, senior vice-president and manager for real return products at the $600-billion-fund which mainly invests in fixed income."

"Greer, who oversees a $12 billion allocation for commodities at Pimco, said his model showed economics would support prices of natural resources. 'To have a speculative bubble, you need one or both of two things, one, a restricted supply of whatever it is that's going to bubble up, and two, you need to lose all concept of an objective measure of value.,"

"'The former was true in real estate.' he said. 'Real estate is in limited supply and you can certainly bid up the price of that limited supply. In the case of dotcoms, there was a classic case of losing all concept of what a measure of value was. Neither of that holds for commodities.'"

Some news from the IMF. "Facing its first annual loss in decades, the International Monetary Fund on Thursday turned to a group of international financial heavyweights to figure out how to pay its bills. Managing Director Rodrigo Rato named a panel of advisers, including former Federal Reserve Chairman Alan Greenspan and European Central Bank President Jean-Claude Trichet, to evaluate how to finance IMF operations."

"The IMF uses interest from loan repayments to finance its operations. The decision of Argentina and Brazil this year to repay their multibillion dollar loans early has left the fund facing an operational shortfall of $110 million this year. And Asian countries that were hit by financial crises in the 1990s have built up huge reserves so they would not have to resort to the IMF for bailouts should they encounter financial difficulties."

"The committee will address ways to finance the fund's operating costs rather than financing for loans to member countries, IMF spokesman Masood Ahmed said. Funds available for lending are at an all-time high of about $200 billion, Ahmed said. In the past the 184-nation lending organization has resorted to selling some of its gold reserves to finance operations."

Comments:
John in VA:

You share this plan with a lot of other folks.

I'm sincerely hoping that everyone that reads this blog also takes advantage of the opportunities that lie ahead.

BTW, just read that 1(!) gold coin would've purchased an entire block of choice RE in the latter stages of the Weimar hyperinflation.

I don't think we're in for a depression, but it's not unthinkable. If the U.S. can get a handle on the twin deficits, the USD will probably not collapse, but may decline further.

Guess I gotta trot out my 1001 reasons why (IMHO) a depression and subsequent USD collapse are inevitable. It appears I can't very well convince you that gold isn't just a passing speculative fancy if you think everything will eventually work itself out.

Geez, are you making me work or what? ;-)
 
Anyone know what the heck is up (and I mean UP) with Rhodium??? Check out Kitco...
 
But tj, do you honestly think we're in for anything like a Weimar hyperinflation? Perhaps if we're conquered by a hostile nation and forced to pay trillions in reparations; otherwise, I think it's far fetched. As for a dollar collapse; I'm not buying into it. For all the talk about foreign central banks walking away from the greenback - they may rotate some of their reserves, but no one wants to see a dollar collapse. That's bad for everyone (even Iran and Venezuela). Could the Euro and Yen become more prominent through the course of time? Sure, and that's not a bad thing. Dollar lose some strength? Yep, and that helps reduce the trade deficit.

I'm sincerely hoping that everyone that reads this blog also takes advantage of the opportunities that lie ahead.

I like to see people make money, too. Just be realistic about the risks. Commodities, including PMs, are becoming very speculative.

By the way, I posted a warning from Stephen Roach at Morgan Stanley about a commodities bubble. I also came across this:
Commodities Too Rich By Half: Merrill Lynch". It's the first time I've tried to see anyone try to specify the amount of speculative premium in commodity prices.

Everyone agrees that speculators have invaded commodity markets, but quantifying how much they are actually dictating prices is a whole lot tougher.

Merrill Lynch & Co. strategist Richard Bernstein took a stab at it in a report Thursday by comparing the spot prices of commodities that have exchange-listed futures with those of commodities that do not have listed futures.

His conclusion? Commodity prices at the end of April were about 50 per cent above where they would be if based solely on fundamentals.

 
good ny times article.

May 18, 2006

The Fever for Exotic Stocks
By LANDON THOMAS Jr.

Simon Nocera runs a hedge fund that invests in emerging markets, and so, perhaps not surprisingly, prides himself on having a keen appetite for risk. But even he had to draw the line when his broker tried to get him into Zambian treasury bills.

"It was pure, baseless speculation," said Mr. Nocera, who has been investing in developing markets for more than 15 years. "If I am going to play the casinos, I would rather go to Las Vegas."

Mr. Nocera did not make the trade, but a number of his even more adventuresome peers did. Propelled by a boom in copper prices, Zambian government bonds, denominated in kwachas and yielding 25 percent for five-year paper, returned more than 40 percent this spring for those with a stomach strong enough for such a risky venture.
 
John in VA,

I'm not happy about it, but yes, I do expect hyperinflation. Again, I'll present my case on that shortly.

BTW, did you note the comment above?

A report from PIMCO. "The drop in oil and metal prices this week has raised fears that a speculative bubble in commodities is bursting, but giant U.S. fund manager PIMCO says fundamentals will hold up the asset class.
 
That statement was made by this Pimco guy:

Greer, who oversees a $12 billion allocation for commodities at Pimco

Kind of like a Realtor saying there's no housing bubble :-)

He makes this statement but doesn't back it up with any facts:

In the case of dotcoms, there was a classic case of losing all concept of what a measure of value was. Neither of that holds for commodities."

I think Merrill makes a decent case with their analysis that it does in fact hold true. Again, that's not to say that there's no fundamental component to the price rise, but Merrill calculates that a third of that price is due to speculation.

Also saw this today:

"We think the commodities are in trouble across the board, including oil," said Pete Kendall, co-editor of The Elliott Wave Financial Forecast newsletter. This is part of a "speculative fury" that began in the stock market and has migrated into "much riskier assets," he said.

Tony Dolphin, director of economics and strategy for Henderson Global Investors, does not necessarily see fury in the price increases of more than 50 percent recorded this year in copper and zinc, for instance, but he does not think that cool rationality can account for all of the gains.

"The speed and scale of the rise in industrial metals prices seen so far in 2006 is extremely hard to justify on fundamental grounds," he said in a note to clients, "and it does appear that an element of speculation, possibly a large one, has entered the market for some commodities."


And separately, this:
the International Energy Agency, an adviser to 26 developed nations, cut its estimate of world energy demand last week, and officials from OPEC said on Monday that demand was lagging behind supply and may drop.

"There's a malaise in all of the commodity markets," said Steve Bellino at Fimat USA. "The interest rate increases should cool the economy and may hurt demand. But keep in mind that we are only one geopolitical event away from a new record."

Crude oil for June delivery fell $2.63 to close at $69.41 a barrel on the New York Mercantile Exchange, which was also its intraday low.

"We don't have strong demand growth and there are some increases in supply," said Tim Evans at Citigroup Global Markets in New York. "There's no physical squeeze at this time and there's a lack of fresh geopolitical developments, so we should be moving lower."

Oil prices around $70 a barrel may slow global economic growth and demand for crude oil, said Abdullah bin Hamad al-Attiyah, the Qatari oil minister. Producers are already oversupplying the market, with as much as two million barrels a day "floating" around in search of a home, he said at an oil conference in Amman.

 
Excellent read... IMO


http://www.wrisley.com/charleyr.htm
 
'scuse me, but where is the viotility in the gold price?

As far as TJs thinking, first there is gonna be some dips. All asset classes. IMHO.

I still think this is pump N dump, who benifits? The IMF?

I once thought it was far fetched that in America, everywhere I go I would be watched by cameras and asked to show my papers please. Not far fetched at all now. Vision is something some people got and some people can never get. People who take risk with a vision are often called great leaders or great criminals.

I still think the apathetic people are a wild card. To get an idea, check out the TV show Lost. The most apathetic guy on the show gets all the guns and with it alot of power (or all the power?) The energetic now eat at apathetics table, so-to-speak. The character Hurley, also very apathetic, may now suddenly be doing something after experiencing personal trama. This changes the dynamics of things. How is that any different than real life? What will millions of once very apathetic people do once things change for them? - wild card.

"...but no one wants to see a dollar collapse. That's bad for everyone (even Iran and Venezuela). .." Who says??? Wouldnt American exporters benifit? Tough choices maybe, but many times the choice is made to suffer to make certain gains. For instance, in the game of king-of-the-hill, you might get clobbered by a dirt clod in the eye, or roll back down the hill, still you fight to get to the top, knowing it may be bad for you, the risks outweigh the losses. So you got a black eye, lost a tooth, and bruised your shin - your king-of-the-hill, it was worth it and it was wanted, but not by your mom.

Fundamentals huh - I cant forget an article Gary North wrote about Martha Stewarts massive empire. It ran smoothly, based on fundamentals that did NOT change when she was arrested and convicted, yet her company stock price plunged. Fundamentals dont mean jack. What did matter was propaganda, perception, and gov. thug power.
 
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