Monday, September 11, 2006

 

Buying Opportunity Or Popping Bubble?

Bloomberg reports on commodity predictions. "The drop in oil, gold and other raw materials since May is signaling an end to the five-year bull market in commodities as global growth slows and demand falls. 'The mega-run for commodities has run its course,' says Stephen Roach, the chief global economist at Morgan Stanley, the world's biggest securities firm. Roach in May said the surge in oil and metals was a bubble about to pop."

"Commodities are plunging because of reduced growth in some of the world's largest economies. The U.S. Federal Reserve's report on economic conditions in each of its 12 districts last week indicated consumer spending rose 'slowly.' Expansion in China, where growth of 9 percent in the past four years caused raw-material orders to surge, may be curtailed as the central bank raises interest rates and curbs lending."

"Some strategists remain bullish. James Gutman, senior commodities economist in Goldman Sachs Group Inc., the world's second-largest securities firm by market value, says the commodities losses are nothing more than 'cyclical fluctuations.' 'We're certainly not at the end of the long-term bull market,' says Gutman. 'If there are any near-term corrections, I'd view them as a buying opportunity.'"

From MarketWatch. "Gold futures dropped under $600 an ounce Monday to their lowest level since late June with some analysts blaming the sharp declines on European central bank gold sales. 'The selling in the last few sessions has all the earmarks of central bank selling," said Peter Grandich, editor of the Grandich Letter."

"'The belief the Washington Agreement participants would not meet their quota by September 26th now looks like wishful thinking,' he added, referring to a handshake-pact among certain central banks to set limits on each year's sales of the metal from sovereign vaults. Gold for December delivery fell $24.30, or 3.9%, to $593 an ounce on the New York Mercantile Exchange, after trading as low as $592.50 an ounce."

"December silver futures also dropped to $11.42, its lowest level since July 27 and was last down 86.5 cents at $11.43 an ounce. The contract dropped nearly 6% last week."

"Precious metals prices have seen some hefty losses over the past several days, but many analysts believe the declines provide a buying opportunity. Against this backdrop, other metals were sharply lower Monday. October platinum lost $36.50, or 3%, to $1,1963 an ounce and December palladium traded down $17.40, or 5.2%, at $316.20 an ounce."

Comments:
I respect Mr. Roach, but I wonder if he takes into consideration the drop in the US dollar over the past few years. Wouldn't an inflation adjusted ounce of gold have to top $2,000 to best it's 80's price?

A lot of things swirling around the markets these days. It is odd to have so many wildly diverging predictions all at once.
 
I think commodities fell because the Fed stopped tightening. I think we could see interest rates go lower. believe it or not, commodities in the 70s were closely correlated to rising or falling interest rates.
 
(A lot of things swirling around the markets these days. It is odd to have so many wildly diverging predictions all at once.)

marc faber calls those crosswinds during a period of change.
 
"A lot of things swirling around the markets these days. It is odd to have so many wildly diverging predictions all at once."

I'm starting to buy the "deflation now, inflation later" theory.
 
There was always the chance of a period of deflation as the economy slows. This will probably be followed by inflation as the USD drops on..you guessed it, a weaker economy. Got to love ka-poom theory.
 
Days like that are painful. However, the solace I take is that it is less painful than finding out that the bank where I had my life savings just went bust because of the poor real estate loans they made. But don't worry, it was partially covered by FDIC.

So, even though it dropped, and could drop more, I can't get too worked up. Yes, it would be nice to sell and buy back later at a lower price (obviously), but that would be some serious timing. Plus, when the reality of our precarious financial situation hits home, it'll hit quickly. Wouldn't want to be scrambling trying to buy PMs then. Take a number and get in line.
 
Guys stop this deflation talk.
This is just technical weakness.
Last bull leg in commodities was so strong it's naturally had to go down for awhile. Gold touched 200 dma, exactly how it suppose to happen. Nothing to it.
My guess is that it will go a little bit lower and then come back sharply. And after that it will be doing nothing for sometime, riping to the upside move.
BTW falling prices is not deflation. Money supply is rising that means we are in inflation.
 
I hear you Mike...

Even on this board, we have conflict on if gold is the place to be, or not- if it follows deflation or not.

In these times it's scary for me to hold on, but its also more scary to think of selling my gold stocks and going all into money market funds.

There is so much going on with our economy that signals gold/stocks is the place to be, but gold is doing the exact oposite of what it should in this climate.

And, next month is October, which everyone knows is brutal to all stocks...I think it will be exceptionally ugly next month, more battering to come for gold stocks...

I'm concerned, but dont know what to do at this point, anyone else have the same dilemma? or is it just me?
 
Laura,
You're not alone. What do you invest in to protect your "wealth" from the ravages of inflation and the possibility of a systemic financial crash or depression? Any hard asset, free and clear real estate, PM's and maybe well- secured/seasoned 1st position paper. Other than that, I can't think of anywhere else to put your money except short term US Gov Tbills, a guaranteed way to loose money.
 
LOSE, not loose! For cryin' out loud.
BTW, consider physical versus paper PM's. I wouldn't count on the system or availability in a worst case scenario.
 
Long term, think long term...

Nothing's really changed, just the rollercoaster taking another fast dip. Must say, though, that almost straight $2 drop in silver was breathtaking, wasn't it?

Okay, let's take stock:

1) US still bankrupt & sinking? Check!
2) Chindia still growing? Check!
3) PM demand still exceeding supply? Check!
4) Inflation still here? Check!
5) Peak Oil still threatening? Check!

...etc. Lots more where those came from. IOW, all the reasons to buy and hold PMs are still present and accounted for, so why the angst?

I'll admit, my short-term prognostications are usually worthless, but long term the fundamentals are undeniable. Unless and until aliens land and show us how to manufacture gold & silver from ordinary tap water... I'm not worried.

Before I ever bought an ounce -- which wasn't really that long ago -- I wondered about the ups and downs. Prechter has always held that PMs and other commodities would absolutely roll over and die just before launching into space. Could very well be, since we could easily see serious deflation before hyperinflation. Then again, Bernanke literally wrote the book on the depression, and he will do everything to fight deflation. What to do, what to do?

For me, it's slow but steady accumulation. Buy on the dips, hold physically, and never look back. I may not know the route or the schedule, but I know the destination, and I don't want to miss the boat.
 
"gold is doing the exact opposite of what it should in this climate"
I strongly disagree, Laura.
Gold is doing exactly what is suppose to. (Hope this will give you some comfort.)
You look at the wrong screen.
You look at News, I look at charts.
This is normal what is happening. It is doing exactly what I said it will do.
And it is possible it will go a little bit lower still.
Go lower or not, it is not ready to start a new run up. Before it will begin its move up it will be more frustration about price action. I am guessing, that at some point it will be standing still for many weeks.
However, I would consider $425 or so as a fundamental weakness, but I don't think it will go lower than $525-550.
 
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