Thursday, June 08, 2006

 

Commodities Suffer Another 'Jolt'

A Canadian update from Bloomberg. "Canada's dollar fell the most in more than two weeks against the U.S. currency on concern a global slowdown will hurt demand for commodities. 'The drop in commodity and energy prices is making the Canadian dollar vulnerable to short-term losses,' said Jack Spitz, director of foreign exchange at National Bank of Canada in Toronto. 'These losses may be exacerbated by a global sell-off in equities and concerns on inflation.'"

"The Canadian dollar, which declined for a fourth day, fell 0.9 percent to 89.03 U.S. cents at 5 p.m. in Toronto. It closed at 89.86 U.S. cents yesterday. One U.S. dollar buys C$1.1232. The currency is down from 91.44 U.S. cents on May 31, the highest since Jan. 4, 1978. The currency extended its loss as Canadian new-home construction fell unexpectedly in May, a second straight decline as the nation's housing market cools."

"Copper, aluminum and zinc led a drop in metals prices as central banks in Asia and Europe raised interest rates to contain inflation, threatening to slow economic growth and demand for commodities."

"Andrew Pyle, head of capital markets research at Scotia Capital Inc. in Toronto, said a decline in commodities is a temporary 'jolt' for the Canadian dollar because geopolitical risks and strong demand from Asia are likely to keep prices higher."

"Gold futures closed at an eight-week low Thursday as the dollar rallied on continued expectations that the Federal Reserve will raise interest rates and on news of the death of Abu Musab al-Zarqawi, the leader of al-Qaida in Iraq."

"Gold for August delivery gave up $18.80 at $613.80 an ounce on the New York Mercantile Exchange, marking its lowest finish since April 13 as losses extended into a fourth day. Other metals also fell sharply. Silver was down 81.5 cents at $11.075 an ounce, its lowest level since March 28. Platinum ended down $41.40 at $1,190 an ounce, its lowest close since May 5. Palladium fell $20.50 to $318.25, its lowest close since March 21."

"From a technical perspective, gold is now close to critical support around a $610 to $613 spot price area, Jon Nadler said. If that level fails to hold, gold could move back under $600 an ounce and spend the summer trying to find its bearings.
'Gold will now have to rely on the retail investor and Asian physical buyers returning to the market with open pocketbooks,' he said. At the least, the forecasts for 'taking out those all-time highs might have to be pushed back a few months.'"

"'In any case, the (now) oversold conditions may persist for a while, and perhaps no real reversal upward will take place until some mega-bull pundit 'capitulates' and declares the gold run as having come to an end,' said Nadler."

The Moscow Times. "The Central Bank said Thursday that it had cut the share of dollars in its reserves to 50 percent, diversifying into euros as the greenback's standing as a reserve currency suffers."

"Central Bank Chairman Sergei Ignatyev said Russia now held 40 percent of its $247 billion gold and forex reserves, the world's fourth-largest, in euros, with the rest in sterling and yen. Ignatyev also said he had not lost hope of Russia meeting its annual inflation target of 8.5 percent for 2006, even though consumer prices rose by 5.9 percent price from January to May."

"The composition of Russia's currency reserves has been kept under wraps until now, but Central Bank officials had said its euro holdings were 25 to 30 percent of the total. The new structure is more in line with the proposed currency allocation of Russia's $71.5 billion budget stabilization fund, which is kept in rubles but will soon be converted into 45 percent dollars, 45 percent euros and 10 percent sterling."

Comments:
Great, another lost post. I'll (try to) redo this one in a few minutes. BTW, what do you readers think about getting the M&M blog away from blogspot?
 
"what do you readers think about getting the M&M blog away from blogspot?"

The only difference as far as I can see is that the HB blog threads better, but has no 'preview' feature.

If its better for you to leave blogspot, then lets go!
 
it seems like everything is selling off. I noticed that the dollar is up against the euro about 3 cents lately. seems people are moving into the dollar and probably US bonds.

the trend hasn't changed, we still have too many dollars out there. our record budget and trade deficits didn't go away. the dollar still has it's problems. the only way to cure them is probably a recession. when stocks resume their secular decline, the dollar is going to be in trouble.
 
a top? this sounds like a top.

"Many people can still recall the lineups at bullion dealers and coin sellers in late 1979 and early 1980. Gold was surging as interest rates and inflation headed well into double-digit territory."

http://www.cbc.ca/news/background/gold/
 
Ben,

I vote that you move, but only you know the costs involved. Would like that "preview" feature on HB, too!!!


John in VA,

You & Andy have it backwards... it's a cyclical bull, not a cyclical bear. There was nothing left in the tank after 2000 for a secular bull to continue. The last few years have all been credit-fueled excess and not sustainable growth.

Additionally, China & India may not drive commodity demand higher, but they certainly aren't going to stop altogether, either. There's no going back.


SilverHwk,

It's one thing to talk the talk. Let's see him walk the walk!
 
(if you think that liquidity will remain high enough to support commodities, or that BB will drop money from helicopters as he once suggested, you should be bullish on stocks and real estate as well.)

as marc faber said, the dow could go to 30,000- but gold would go there too. dow up 3X, gold up A LOT more.

if liquidity is the story, how do you explain the 30s and 70s? anyways, liquidity doesn't always flow into stocks. eventually the liquidity will be recognized as inflation and hurt stocks and homes.
 
I forgot, it's also more than a liquidity story. it's the fact that supply was down while commodities were in a 25 year bear market. will they go down for another 25 years? no. whatever hits us, will just be a nasty correction for commodities. like I've said, I think we'll see a deflationary recession. most assets will fall hard. commodities could fall 30-40%. but in the end, gov'ts and CBs will print money. that's what they do. as SD CDL said, that's what they're trained to do. when they do that, the only thing in demand will be commodities. you won't want stocks and you won't need(or be able to afford) a home.

you need OJ, you need rubber and you need sugar.
 
sorry for the third post in a row, but we haven't even talked about the dollar yet. lots of dollars destined to leave the US and central bank reserves for safe haven of commodities...

U.S. April Trade Deficit Widened 2.5% to $63.4 Bln
 
John in VA,

To some extent we're splitting hairs. Yes, liquidity has been a factor in everything lately. However, it simply threw fuel on the fire for commodities, whereas stocks & housing would have gone nowhere but down without it.

Now that liquidity is being withdrawn, housing & stocks *will* go down, whereas commodities will only surrender their most recent gains (i.e., those that you've labelled the most parabolic).

Oh, and people (and core businesses) don't need to buy homes and/or stocks like they do commodities. Regardless of the state of our (or the Chinese or the Indian) economy, a certain level of demand is guaranteed. That demand will continue to exceed supply... it'll just vary the degree (and therefore the rate of price growth).

Given the overbuilt state of RE and the overbought state of stocks, both of those will see demand lagging supply for years to come.
 
thejdog,

Fortunately for us, those actions will have limited, short-term effects. In the meantime, think of how many more ounces you can collect for your money! ;-)
 
(If you're investing for the long run, it is indisputable that stocks trounce gold. Absolutely no doubt.)

how long are we talking about? listed companies come and go. you have to be able to pick the rights ones. I can give you more than a few studies that show commodities have better returns thans stocks. there aren't that many companies that are as old as some of the coins I have. there are a lot that have gone bust. very few companies from the original dow jones index have survived.
 
If you're investing for the long run, it is indisputable that stocks trounce gold. Absolutely no doubt.

Okay, somebody's been drinking too much Wall Street kool-aid! I'll have to go back to my Mauldin books for the exact figures, but this one is highly disputable.

Bernanke telegraphed his intentions to everyone last week.

It wouldn't surprise me if some parties got the news a little earlier and more directly...
 
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