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The Morning Gold Report by
Peter A. Grant
Gold Gains Falter Shy of $890
May 09, a.m. (USAGOLD) -- Gold edge closer to the $900 level in earlier
trading, but have since retreated into the range on news that
the US trade deficit narrowed more than expected in Mar. Nonetheless,
the recent gains are encouraging. A softer dollar tone and another
round of new record highs in oil should continue to support the
yellow metal.
There was a very interesting
article in the FT yesterday (linked in Market Movers below) that
suggests the "commodities boom may not be the bubble imagined."
The IMF has expressed considerable concern over global inflation.
John Lipsky, IMF deputy managing
director said that the surge in commodity prices "appear
to be fundamental in nature." This is a point that was highlighted,
with respect to gold, in Mike Kosares' excellent article Golden Gut Check from 07-Apr.
Mr. Kosares concluded the following:
The fundamentals lead us to the conclusion that there has been
real substance to the gold rally of the past two years -- a rally
which has taken the price 75% higher. Those who have called gold's
up trend the latest in a string of speculative bubbles do so from
a lack of perspective and understanding. Likewise, the fundamentals
hold out promise for the future in that none of the trends in
place are likely to reverse anytime soon. We are left with the
impression that the gold bull market is likely to stay on course
in 2008, even if we experience a short-term correction or two.
The theory that fundamentals
are to blame for surging commodities is echoed in a Wall Street
Journal article today (linked in Market Movers below).
Those subscribing to the 'bubble
theory' are placing far too much emphasis on US demand, or the
anticipated slackening of demand as the US economy slows. As we
have stated on numerous occasions, any drop in US demand has been
and is likely to continue to be offset by growing demand from
emerging economies such as China, India, Russia and Brazil.
The fact that the dollar remains
in a long-term downtrend further exacerbates the problem, making
dollar priced commodities comparatively less expensive to holders
of other currencies, thereby increasing demand.
Investor demand may indeed be
adding some froth to the market. However, if the underlying fundamentals
for a wide array of commodities remain favorable -- rising demand
and tighter supplies -- it discredits the 'bubble' scenario to
a large degree and lends considerable credence to the 'super-cycle'
scenario.
The Russian economist Nikolai
Kondratiev first put forth the theory that commodities move in
50-60 year cycles in the 1920s. He suggested that commodity prices
rose during periods of increased capital investment and fell as
those investments lose value. He observed that the average upswing
lasted 24 years and the average downswing averaged 29 years, a
complete cycle of 53 years.
Kondratiev noted three major
commodity upswings: 1789 to 1814, during the French Revolution
and the Napoleonic wars; 1849 to 1873, the age of European industrialization;
and 1896 to 1920, when the US emerged as an economic juggernaut.
Kondratiev was killed in 1938
during Stalin's purges, but if you project forward, an approximate
29-year drop in commodities was due between 1920 and 1949. This
period included the Great Depression and the Second World War.
Another 31-year upswing would
have taken us through the inflationary 1970s, to the peaks for
oil and gold in 1980. Another 22 years beyond that would take
us to the point from which the latest upswing began in 2001. Viewed
another way, 53 years from 1949 would have projected the next
cycle to begin in 2002.
Not a bad piece of forecasting
for a young economist that never saw his 47th birthday.
Projecting forward once again,
we might expect the upswing that we're presently in to last 24
years. That would suggest that we're less than a third of the
way through the present upswing. Put in that context, $200 oil
and $2400 gold seem to be fairly reasonable longer-term objectives.
It also makes a sub-$900 purchase of gold seem a relative bargain.
The necessary capital investment
Kondratiev spoke of now seems to be coming from the explosive
growth of developing countries. In 2025-2026 might we be looking
back on the current upswing as the age of the BRIC nations (Brazil,
Russia, India, China)?
Another important component
of a super-cycle upswing is inflation compounded by the rampant
growth of money supply. The IMF has made it clear, as has the
ECB, the BoE and to a lesser degree the Fed, that they are supremely
concerned about the accelerating pace of inflation.
As for the rampant growth of
money supply -- well we've certainly seen that in spades in recent
years.
When you do reflect back on
the present market conditions from some point in the future, will
you be looking back with a sense of satisfaction; knowing you
made a sound decision to preserve your wealth with purchases of
physical gold from USAGOLD - Centennial Precious Metals?
Gold Market Movers:
US trade deficit narrowed in
Mar to $58.2 bln, versus $61.7 bln in Feb.
Canada trade surplus widened
in Mar to C$5.5 bln.
Canadian employment for Apr
+19.2k, better than expected. Unemployment rate 6.1%.
French industrial production
for Mar came in weak at -0.8% m/m.
IMF warns on global inflation
WSJ: Economists blame food,
fuel run-ups on fundamentals
Lots of froth does not mean a bubble
Call options bet on oil hitting $200
Stock index futures suggest
a lower open on Wall Street.
Opinions
expressed in commentary on the USAGOLD.com website do not constitute
an offer to buy or sell, or the solicitation of an offer to buy
or sell any precious metals product, nor should they be viewed
in any way as investment advice or advice to buy, sell or hold.
Centennial Precious Metals, Inc. recommends the purchase of physical
precious metals for asset preservation purposes, not speculation.
Utilization of these opinions for speculative purposes is neither
suggested nor advised. Commentary is strictly for educational
purposes, and as such USAGOLD - Centennial Precious Metals does
not warrant or guarantee the accuracy, timeliness or completeness
of the information found here.
Afternoon Report
Gold closes nearly $11 higher
on day
The COMEX June gold futures
contract closed up
$10.90 Thursday at
$882.10, trading between $866.40 and $887.00
May 8, p.m. excerpts:
 (from MarketWatch) --
Gold futures closed with strong gains Thursday, as weakness in
the U.S. dollar underpinned demand for the precious metal. Gold
for June delivery rose $10.90 to end at $882.10 an ounce on the
New York Mercantile Exchange. On Wednesday, gold closed $6.50
lower at $871.20 an ounce, after climbing nearly $27 over the
previous three trading sessions. The dollar was modestly lower
Thursday, losing ground to the euro and the pound after both
the European Central Bank and the Bank of England both decided
to hold policy steady . ECB President Jean-Claude
Trichet
cited inflation risks in
his statement, further bolstering the common
currency. "I am seeing the dollar catch a new wave of selling,
which continues to push gold higher," said Zachary Oxman,
a senior trader at Wisdom Financial. "I also think we can't
discount the strong moves in crude and their staying power so
far," Oxman said. Crude-oil futures fell from record territory,
pulling back after gaining nearly 10% in the past four sessions...more
(from Bloomberg) --
Crude oil touched a record $123.93 a barrel yesterday. Gold has
trailed advances in oil since setting a record at $1,033.90 an
ounce on March 17. The metal has gained 5.3 percent as oil rallied
28 percent this year. "Gold is undervalued," said Nick Ruggiero, a trader at Eagle
Futures Inc. in New York. "There's still some inflationary
concern in the market. Overall, gold is cheaper to buy than crude
right now." Ruggiero added, "We've seen strong buying
each time gold has pulled back." The dollar fell as the
U.K.'s London-based central bank kept its base interest rate
steady at 5 percent after three 25 basis-point cuts from 5.75
percent in early December. The ECB, based in Frankfurt, has kept
its benchmark refinancing rate steady at 4 percent since June
2007. The Federal Reserve in Washington has lowered the target
U.S. bank-lending rate seven times to 2 percent from 5.25 percent
in September...more
Gold ... Yearly Chart
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The Gilded
Opinion |
Gold's downturn
to be limited - says BlackRock (ThomsonFin 5/2)
Gold's march higher may have stalled in recent weeks but still-strong
demand, limited supply and the possibility of further jitters
in the economy mean the longer term upward trend is far from
over, BlackRock's head of resources Graham Birch said. "What
drove gold above $1,000 was an extreme amount of fear that the
financial world was in great peril and it was hours away from
a cataclysmic collapse," said Birch. U.S. central bank intervention
and moves by major banks to repair some of the damage inflicted
by the credit crunch have eased those fears, but investor interest
in commodities as alternative assets remains strong.
Crisis in food
prices threatens worldwide starvation (GlobalRsrch 4/24)
Rising worldwide food prices are resulting in shortages, riots
and protests, promises by governments to expand food aid, expressions
of concern by international bodies like the World Bank, and stress
on household budgets even in developed countries like the U.S.
All that glitters in tough times is
probably gold (stuff.nz
4/22)
Conditions still favour gold. Gold prices rose in recent
weeks as record oil prices and continued weakness in the dollar
encouraged investors to buy into bullion. With crude prices touching
a record, gold's role as a hedge against rising inflation has
seen the precious metal move higher.
 Chinese
increasingly buy gold as wages rise (AFP 4/21)
"The stock market is not as good as before and people do
not feel safe parking all their savings in banks." says
Lin Yuhui, analyst at China International Futures. "So they
tend to buy gold as a means to hedge inflationary risks."
Citibank to
reduce market-making ops in gold (MktWtch 4/21)
"We continue to make aggressive markets in precious metals
for our customers, and when it suits us we will also make markets
for our competitors. We are no longer going to be part of the
obligatory market-making scheme for our competitors," said
a Citibank spokesman. Citibank said it stopped making the obligatory
spot, forwards and options markets for other banks since late
autumn. Citibank services the precious metals markets 24 hours
a day from its London and Singapore offices. [Market makers are
price makers and are obliged to display bid and offer prices.
Most traders are so-called price takers - they get to pick and
choose when to get in and get out of the market.]
India may soon
fix gold prices for global market (IANS 4/21)
India, one of the leading gold consumers in the world, may soon
manage to move from being a mere "price taker" to a
"price maker" in the world of royal metal. Tired of
the wild fluctuations of gold price in the London Bullion Market
and its impact on Indian market, Bombay Bullion Association (BBA),
in collaboration with Bombay Stock Exchange (BSE), National Multi-Commodity
Exchange (NMCE), IT People (India) Ltd and Reliance Money Ltd,
has decided to set up its own trading platform for gold. "We
want to launch it in a month's time."
The appeal
of gold (Fortune
4/17)
The hard-core survivalists, however, share some overlap with
the moderates in that the value of the dollar is a perpetual
concern. The moderates would point out that while the dollar
is unlikely to fall into total worthlessness, it's getting a
bit more worthless day by day -- a slow but inevitable crumbling
of social infrastructure and economic systems.
S.Africa
gold output falls 28% (Reuters 4/10)
South African gold output fell 28.2 percent year-on-year in February
in volume terms, while total minerals production fell by 7.3
percent, official data showed.
Lehman bailed
out money market & cash funds (Blmbrg
4/10)
Managers of money market funds have spent more than $4 billion
to prop up money funds that were supposed to have investments
that were the safest outside of bank deposits and government
debt.
IMF to shed
staff and sell gold
(FT 4/8)
 The board voted yesterday
to cut 15% of its staff and sell about $11bn in gold reserves
in one of the biggest shake-ups of its funding since it was founded.
The IMF plan to cut 380 jobs and sell 403.3 tonnes of gold, about
an eighth of its reserves, still must be approved by the US Congress,
which is unlikely to happen until after the presidential elections
this year. The drying up of loans [to nations in financial crisis,
which was its main source of income,] had set the organisation
up for a $400m funding shortfall by 2010. [According to a related article by Reuters: An IMF official said,
"We would either sell to the market or, if we can, sell
it to a central bank" at market prices.]
Markets still
'impaired', Fed urges action (Blmbrg
4/3)
New York Federal Reserve Bank President Timothy Geithner said
capital markets are still "substantially impaired"
and policy makers and financial industry leaders must "act
forcefully" to stem the crisis. "What we were observing
in U.S. and global financial markets was similar to the classic
pattern in financial crises." The current financial crisis
is the worst since the Great Depression, billionaire George Soros
said in an interview yesterday. "This will probably not
prove to be the final bottom" in financial markets, he said.
Bernanke defends
Bear Stearns rescue
(AP 4/3)
 In his
testimony Wednesday, Bernanke said the Fed and other government
agencies were informed on March 13 that without help Bear Stearns
would have to file for bankruptcy the next day. He said that
"the damage caused by a default by Bear Stearns could have
been severe and extremely difficult to contain." ... "We
did what we did because we felt it was necessary to preserve
the integrity and viability of the American financial system,
which in turn is critical for the health of the economy,"
Bernanke said.
China's great
leap into bullion investment (WSJ
4/2)
...new ways to invest in gold are rapidly popping up in developing
countries. It's transforming the market for one of mankind's
most venerable ways to sock away wealth. The door is opening
to a new class of investors who previously wouldn't have had
access to gold futures and other tools. Their rush to invest
has helped fuel soaring prices. Only in 2002 did investors in
China get the ability to trade physical gold on the Shanghai
Gold Exchange, though individuals couldn't invest in actual bullion
until 2005.
Analysts See
Gold Decline As Profit-Taking Correction (DJ
4/1)
"You've got to bear in mind the spectacular nature of the
rally" prior to the pullback the last two weeks...
Gilded Opinion
- Rocket School of Economics
The Broken Watch - Part 1
This is a country in debt up to its neck. Its citizens have no
savings and the means for maintaining the debt game have been
exhausted. The idea of using ones home equity -- which was the
result of inflating house prices -- as a form of savings is over.
Those who have aided and abetted this insidious scheme are now
finding this out for themselves. The banking system has no fallback
position.
Also... The Broken Watch - Part 2
Central Banks
Case Study: Switzerland's gold sales (Mineweb
3/26)
The SNB has stressed that gold remains an important comment of
the balance sheet and the implication is that this current programme
is likely to be the last for the time being.
BlackRock says
gold record high may be challenged (Reuters
3/26)
Investment manager BlackRock expects tight gold supply and a
gradual rising trend in the price which could lift the metal
to new highs.
Next Stop:
$2000 gold (SeekingAlpha 3/24)
...the Fed is exercising its right to print money with renewed
abandon, comforted by the short term validation of its strategy
afforded by the Dow's responsive surge. ... The general feeling
on Wall Street is one of suppressed awe for the utter absence
of hesitation the Fed chairman has demonstrated in the face of
the crisis. His creativity and resourcefulness during this time
is admirable. The next 10 to 12 weeks are going to be no less
chaotic then we've those we've been enjoying in 2008. This is
what Ben Bernanke is facing next, and the only real weapon left
in the arsenal is more cash, which is okay for the short term,
but the dollar is becoming more and more worthless with every
billion dollar bailout.
CHINA: Investors
keen despite gold price dip (CCTV
3/24)
Big swings in global prices for gold and a sluggish stock market
have triggered a rush to invest in the yellow metal.
Faltering market
conditions could push gold to $1,800/oz within year (TF
3/17)
In the shadow of Sunday's "bailout" of Bear Stearns
"conditions in the major financial markets have deteriorated
further, which we believe increases the probability of a sharp
upward spiral in the gold price," analyst Paradigm Capital
Analyst Don MacLean said. He now believes there is a 40% to 50%
chance that gold will reach $1,800/oz within a year, up from
a previous estimate of a 25% chance back in January.
Worth Lingering:
Gilded Opinion
-- How to invest in commodities...
Our lives depend on commodities yet most are too afraid to invest
in them. History is dotted with massive bull-markets in commodities,
which occurred regularly. In fact, over the past 200 years, we
had five major booms in natural resources. The shortest boom
I could find lasted 15 years, and the longest one continued
for 40 years!
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