Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Gains New Friends

Commodities / Gold & Silver 2009 Oct 23, 2009 - 01:26 AM GMT

By: HRA_Advisory

Commodities Best Financial Markets Analysis ArticlePress rumors of planning meetings to shift crude pricing away from the US$, plus a 0.25% increase in Australia’s bank rate, has put some serious bounce in gold and silver prices.  The yellow metal has convincingly moved past its old high, in US$ terms, and we expect that move to continue.  Whether the details of the meetings reported in London’s The Independent are accurate in every detail or not, markets have had no problem accepting the basic point that the greenback cannot expect long term support as the globe’s reserve currency.


Commodity prices, especially gold and silver, are very much currency stories.  The US Dollar continues to lose face for a variety of reasons, with more rapid growth in the creditor and resource producing nations being the latest.  This, not inflation concerns, has been our focus.  Australia’s increase in its bank rate may be duplicated in a number of other economies before Washington gets around to it.  This would continue the downtrend in the Dollar and uptrend in precious metals no matter what inflation looks like.

Lack of high yield alternatives, plenty of frustrated money on the sidelines and the potential for “good” earnings (at least by comparison with the past 12 months) may drive the major bourses higher yet.  This will add more strength to the already outperforming metals sector.

The biggest potential short term risk is that Dollar Distaste reaches the bond market and drives yields higher.  That could turn the Dollar and the stock markets around quickly.  Be happy, but keep an eye on those Treasury yields.

Copper stocks continue to pile up while the red metal sustains price against US$ weakness.  Over half the stockpile taken down earlier in the year has now come back into market.  Some of the stock on offer would likely disappear on a price decline, or if the current Dollar weakness turns into a rout. But that has to happen before we are comfortable with this year’s price gains.  The message since mid July has clearly that users think the price move has been “too far—too fast”.

That remains the case for most commodities.  Traders are playing musical chairs to a tune of weak Dollar fundamentals against a melody of uncertainty for demand sustainability.  Notwithstanding our belief that the greenback’s decline is a longer term phenomenon, we don’t look for anything to trade in one direction permanently and this move will be to a new trading level.  We doubt the guy in the last chair of this round will celebrate for very long before shifting direction with the herd.  

We should note again the continuing calls by the government for closure of Chinese smelters.  This is due to both inefficiency and overcapacity.  Current stockpiles aside, excess smelting capacity is not the same as excess metal producing capacity.  The two roughly equate for some metals, such as  aluminum for which there is a ready supply of input minerals in coastal regions that could use development funding. 

Foundry capacity, or overcapacity, will not govern iron ore supply for the time being.  Most prospective ore regions need infrastructure to coastal shipping ahead of any expansion.  Longer term iron ore supply will come from regions that put that infrastructure, and longer term contracts, in place.  We do still see opportunity in iron ore, partially because of the politics that surrounds it.

Medium and longer term copper capacity will be governed by mine supply, and the long time frames for large copper mines to come on stream.  Smelters can’t process concentrates unless mine supply is sustained. The same holds for zinc and to a lesser extent nickel.  We don’t view China’s push to reduce smelting capacity as a sign the metals bull has run out of steam. It simply makes sense for China to shut in costly, polluting smelters when there is capacity next door in more efficient Korea and Japan. 

Japan’s new government has referenced abandoning the weak Yen policies of its predecessor several times now.  Given it is supposed to be part of the talks cited by The Independent and that the Yen (along with gold and the Yuan) are supposed to be part of a new “basket” for oil settlement, that stance is making more sense. 

More importantly, Japan’s new leadership has stated it favors stimulating domestic spending in order to end a deflationary malaise the country has lived with for most of the past two decades.  Cheaper inputs for its resource poor citizens are therefore more important to it than cheapening the exports market of its high end producers by devaluing its currency.
 
These pronouncements have aided the cause of price support for Dollar denominated global goods.  But, markets are and will continue to have a tough time with deflation’s poster child righting itself in the current environment.  That is entirely reasonable given deflation’s shadow slowly creeps over the western landscape.  However, PM Hatoyama is quite deliberately shifting sentiment away from a western focus of the past half century.   

At worst this is pragmatic recognition that the customer base for Japan’s goods has ended its buying spree.  The real message is that Japan is wealthy and able to chart its own course, once it has detoxified its bureaucracy from spinning funds into their retirement companies. There will be no quick fix from this policy shift, but it makes more sense than a failed policy requiring western sales points for its goods. 

We can’t overstate the potential importance of these moves in Japan.  This is the second largest economy on the planet in nominal terms, and yet one for which concern that a lack of raw materials supply could hamper its growth spurt is very much a living memory.  It has also seen a massive growth in ore processing to meet this concern overtaken in large measure by neighboring South Korea.  We believe a shift is building in Japan to a much greater emphasis on its domestic economy, and equally to more focus on its regional economy.  That should mark a major shift in the geography of country risk, and a greater acceptance that “Asia rising” is the global boon we perceive it to be.   

So, how does that impact the current gold boom?  It should simply give it a greater head of steam.  Missing from the weakening Dollar equation was how the other side of that equation shapes up.  Much of Europe was happy to jump on the cheap debt = housing boom bandwagon, and so is in no better shape than the US.  So the Euro can sustain only so much upward pressure.  Currencies in the less weakened industrialized “west” — AUS, CDN, NZ— simply don’t have the scale for the job.  There has been only one sensible answer.

We have said in the past that the only equation that made sense was Yen strength as a proxy for Asian growth economies.  Most wrote off the notion because of Japan’s export model.  Now that Japan has a government that is willing to play that card, the pieces are truly in place for quick shifts in the FX market.  Gold and silver will benefit smartly from that, and no the world is going to end as part of the process.

Right how we are seeing a major catch up going for undervalued asset based companies in the precious metals space.  This part of the up tick could surprise even rabid bulls.  Some more speculative companies that had been strong gainers appear to be flagging because of this, but that won’t be permanent.  Speculative gains should be moved to companies with more solid outlines, but as the asset based companies get closer to full price funds will flow back to specs.

If you are a trader, the shift from one play to the next could get dizzying.  If you aren’t, then view this as a “stay the course” moment for precious metals.  Expect some significant pull backs as traders take gains, but these will be in the context of a rising market for some while yet. 

Ω

Gain access to potential gains of hundreds or even thousands of percent! From March to June, HRA introduced four new gold explorers to subscribers. Those four companies have generated an average gain of 205%, to date! SPECIAL HRA OFFER: For a limited time only, HRA is offering free reports and a subscription savings. Click here for more information: http://www.hraadvisory.com/sh2009.html

David Coffin and Eric Coffin produce the Hard Rock Analyst publications, newsletters that focus on metals explorers, developers and producers as well as metals and equity markets in general. If you would like to be learn more about HRA publications, please visit us HERE to view our track record, see sample publications and other articles of interest. You can also add yourself to the HRA FREE MAILING LIST to get notifications about articles like this and other free analyses and reports.

By David Coffin and Eric Coffin
http://www.hraadvisory.com

    David Coffin and Eric Coffin are the editors of the HRA Journal, HRA Dispatch and HRA Special Delivery; a family of publications that are focused on metals exploration, development and production companies. Combined mining industry and market experience of over 50 years has made them among the most trusted independent analysts in the sector since they began publication of The Hard Rock Analyst in 1995. They were among the first to draw attention to the current commodities super cycle and the disastrous effects of massive forward gold hedging backed up by low grade mining in the 1990's. They have generated one of the best track records in the business thanks to decades of experience and contacts throughout the industry that help them get the story to their readers first. Please visit their website at www.hraadvisory.com for more information.

    © 2009 Copyright HRA Advisory - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    HRA Advisory Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules