Friday, July 14, 2006

 

'Scare Premium' Drive Up Gold And Oil

Nervous markets pushed up gold and oil today. "Gold rose to a six-week high as crude oil surpassed $78 a barrel for the first time as concern mounted over escalating violence in the Middle East. Crude oil for August delivery rose 30 cents, or 0.4 percent, to $77 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $78.40, the highest since trading began in 1983."

"Gasoline futures rose by 2.36 cents to settle at $2.3249 a gallon, the highest level since late September of last year, when U.S. refinery output was sharply curtailed by hurricane damage. In London, Brent crude futures gained 58 cents to settle at $77.27 a barrel on the ICE Futures exchange."

"'We've reached a level where we've put all the scare premium into the market that we can,' said James Cordier, president of Liberty Trading in Tampa, Fla. 'At this point, we have to have a disruption to move smartly higher from here.'"

"Gold for August delivery finished up $13.60 at $668.0 an ounce on the New York Mercantile Exchange, its highest closing level since May 23. The yellow metal gained 5.2% this week. 'The bonfire that the Middle East has now become has put the gold bullion into hyper-drive and gave the market a very strong close,' said Jon Nadler, an analyst at Kitco.com."

"'Fast approaching the $670 target, gold now stands poised to spring to $680 and $700 in short order, should any single geopolitical trouble spot erupt into a larger or more serious conflagration,' Nadler said."

"'With no sign of a let up in geo-political tensions and oil prices potentially looking to test $80 a barrel, I think there is now scope for gold to test $680,' said James Moore of TheBullionDesk.com."

"Other metals prices also posted gains. Silver added 4.50 cents at $11.530 an ounce and copper rose 3.60 cents at $3.7125 a pound. Platinum was up $3.50 at $1,267.50 an ounce and palladium settled up 45 cents at $334.50 an ounce."

"'Silver, platinum and palladium are industrial metals first, and are stores of value secondarily, if at all,' said Dennis Gartman in The Gartman Letter. 'Gold, however, remains the currency of choice during periods of political instability. It is such again.'"

"Richard Bernstein, chief investment strategist at Merrill Lynch, said that this week's flaring of violence around the world, especially in the Middle East and India, reinforced his expectation that global political instability will only grow in the future. 'It is unfortunate, but defense stocks (both in the US and Europe) and small gold positions still look attractive to us,' Bernstein said."

Comments:
An incredible run for gold, after the June retreat. With all the news, I haven't been able to read the free-week technical reports at EWI, but I will try to post on that this weekend.
 
Fear has not even begun to be felt. So far only professional traders and gold bugs are buying. When the general public wakes up to the situation, how high can prices go? To the moon, Alice.
 
We didnt see a drop in gold after BOJ raised rates as some had predicted...
 
Both Gold and the Dollar gained ground this week, that bodes well for support on Gold at these levels.

In most occurences the 2 do not go up together. The Dollar is toast as we know and when the Fed stops raising, 2 or 3 meetings out, we should get a nice 10%(ish) pump(?).

Of course the Geo-Political situation may be the "flight to safety" pump(?).

As I feel I am the novice to most posters here, your incites and opinions on this are of great interest to me.

OCBear
 
Had to share this, it is basically the St.Louis Fed saying the US is bankrupt or heading to bankruptcy.

It does include suggested fix's. They are extreme to say the least, but the current imbalances are going to take extreme measures.

http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf
 
The time is coming for PMs. When you have so many people in supposed respected positions stating that cutting taxes actually increases revenue, and not including the fact that over time, it is impossible unless you are expanding the money supply, how can it not end badly? As it gets more and more apparent that shit is getting deep (not talking the mess in the Mideast, it's always been there), PMs will continue climbing as other assets fall. It hasn't been different in the past, and I don't see how it will be different this time. If anyone reading thinks you can cut taxes and increase revenue while holding the money supply constant, let me know. I can explain fairly quickly how it is impossible. Hell, you can put the tax to zero. Just let the gov't create new money to pay their debts. Sure, they'll be inflation like hell, but at least you won't be taxed (sarcasm). Every politician can say they'll cut taxes. Why not, it actually increases revenue. It's the American way. Why should you actually have to work for money. Do nothing, and still make money. That all works with the US $ as the reserve currency, and what you have to hold to buy oil. You can literally tax the world to pay for your laziness. It works until something changes the situation. Russia selling all their petroleum in Rubles starting 1 Jul, IMO, has had a bigger impact on oil rising than the issue in the Mideast. Well, actually, they are probably all tied together. Bottom line, I don't see gold getting cheaper.
 
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