Global Gold Supply 3

 

Ever since the beginning of gold’s bull market, this metal’s economic balance has come under intense scrutiny. Demand has been on the rise as more and more investors have embraced gold as a store of wealth. And the supply chain has done its best to meet this growing demand.

However considering gold’s sharply rising price over the last decade, it is clear that this market has been experiencing a major structural imbalance. And the supply side of the equation has proven to be a fascinatingly volatile realm, making it quite difficult to set the scale.

Interestingly this supply volatility is somewhat of a new phenomenon, as the major supply sources of mine production, recycling, and central-bank sales had been relatively consistent and reliable in feeding demand for many years. But for a variety of reasons, this just isn’t the case anymore.

$HUI 401.69 Aircraft Carrier Update

Graceland Updates


       April 24, 2012

 

1.   If you analyze the market, you are usually trying to identify the next market trend, so that investors can place buy or sell orders. The reason for placing these orders is to book a profit or a loss.

2.   When it comes to the gold market, I’m not sure that analysis is the best tool to maximize profits and emotional stability in this super-crisis. In a super-crisis, destruction is a major theme.

3.   If you view the gold price grid as a battlefield, and view gold bullion as the “Queen” of your forces, I think you will fare better. Rather than looking at a gold bull market and a dollar bear market, view this crisis as a financial war where you are a predator. You exist solely to take what your opponent has.

4.   Look at this crisis as a war between a “gold bullion punisher” and a “dollar bug” enemy.

Weighing the Evidence of Oil and Gold Stocks

 

By Frank Holmes

CEO and Chief Investment Officer

U.S. Global Investors

The MSCI Emerging Markets and the S&P 500 indices have increased double digits since the beginning of the year. Investors should be thrilled, but instead of cheers, the only sounds the markets are hearing are crickets. Many have been asking, where are the investors?

Since January 1, another $12 billion left U.S. stock mutual funds while about $100 billion went into bond funds. This continues a mutual fund outflow trend that has been ongoing for several months now.

After leading markets since the rebound began in 2009, natural resources and gold took a break while severely punished stocks saw a big bounce in the first quarter of 2012. Taking a look at the returns below, the S&P Global Natural Resources Index rose only 4 percent and the NYSE Arca Gold Miners Index (GDM) lost 9 percent.

China Commodities Drag

 

Commodities have been sinking like stones since late February, an unusual divergence from the rallying stock markets. This relentless weakness has wreaked havoc on commodities sentiment, leading traders to abandon commodities stocks. As we all try to make sense of this surreal bloodbath, one catalyst keeps coming up. Western perceptions of the Chinese economy have been a real drag on commodities.

China is indeed one of the major drivers of this past decade’s secular commodities bulls. As the world’s most-populous country, it has over 1.3b people who collectively consume vast amounts of resources. China sports the fastest-growing major economy on the planet, which has recently catapulted it to become the world’s second largest after the US. China is also the second-largest importer on Earth.

Many of these imports are raw materials, which China’s myriads of factories fashion into finished goods that are exported globally. As the world’s largest exporter, the sheer quantities of commodities necessary to feed this machine are staggering. And the great income this export trade generates is inexorably raising the standard of living in China, and of course wealthier people consume more commodities per capita.

Currency Wars: Gambling With Other Peoples’ Money

Axel Merk, Merk Funds

April 19, 2012

If running out of your own money wasn’t bad enough, policy makers are increasingly spending other peoples’ money to bail their country out. At the upcoming G-20 meeting, finance ministers from around the world will contemplate an increase to the resources of the International Monetary Fund (IMF). At stake for politicians is whether they can continue to do what they know best – to play politics. In contrast, at stake for investors may be whether currencies will retain their function as a store of value. 

Primary trend is up

The world’s most influential central bank wants to inflate American asset prices; thus it is conceivable that the ongoing rally on Wall Street will continue for several months. Look. The Federal Reserve has made it clear that it will keep rates on hold until at least December 2014 and it is also buying US Treasuries across the entire yield curve. Put simply, Mr. Bernanke is suppressing interest rates and he is forcing investors to search for yield.

In our view, when it comes to investing, monetary policy trumps everything else. Furthermore, as we explained in last month’s Money Matters, the risk free rate of return determines the value of all asset prices. Therefore, the Federal Reserve’s commitment of keeping short term rates near zero is favourable for risky assets.

Turning to the economy, it is notable that recent data suggests that things are improving in the US. Fortunately, unemployment is coming down and housing seems to have bottomed out in most parts of the nation. More importantly, the forward looking leading indicators are also suggesting that the US will avoid slipping into a recession within the next six months.

"Doctor Copper Becomes Doctor Plopper"

       April 17, 2012

 

1.   What economic phenomenon is most worrisome to Dr. Ben Bernanke? To view a picture of the answer, please click here now.

2.   A higher oil price is Dr. Bernanke’s biggest fear, and I believe a new move higher is beginning right now.

3.   David “SuperDave” Greenlaw is Morgan Stanley’s chief U.S. fixed income strategist. A number of Morgan Stanley’s top economists, including SuperDave, have issued substantial warnings that the American economy faces what they term a “fiscal cliff” in 2013.

Where’s the Beef for Gold Equities?

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Gold bulls have plenty of room to graze in the stockyard these days as the investing herd migrated to other assets during the market’s steep climb in 2012. For the fourth time in the past year, gold bears outnumbered the bulls in Bloomberg’s weekly Gold Bull/Bear Sentiment Survey. In fact, the bears had the bulls outnumbered by almost 2-to-1.

Today’s growing sloth of gold bears is a “buy” signal for contrarian investors like us at U.S. Global. Research from the gold team at Canaccord Genuity found that gold rallied about 10 percent on average during the month following each of these sentiment “cross-overs.” This historical increase means that gold could potentially rally to the “high $1,700’s per ounce,” which Canaccord believes “would breathe some new life into the gold equities.”

Bullish Gold Technicals



Gold has been weathering some considerable selling pressure lately, which has naturally turned sentiment quite pessimistic. Bearish commentary abounds, with all kinds of predictions for further declines. But as is usually the case after any material selloff spooks traders, gold’s technicals are actually very bullish today. Gold’s next move will likely prove to be a major rally.



Gold’s latest selloff started on February 29th when the Fed Chairman’s testimony before Congress convinced traders that a third round of quantitative easing is becoming less likely. Gold plummeted 5.1% on this latest in a long line of irrational QE3 scares, its biggest down day since the stock panic. Over the 6 weeks since, gold has retreated as much as 9.3% at worst (including that initial plunge).



Of course gold’s day-to-day price action has felt weak during this selloff, sparking plenty of fears, anxiety, and worries in the hearts of speculators and investors. But as always in the markets, the tyranny of the present deludes traders into foolishly missing the forest for the trees. Perspective is crucial to maintain, as keeping current events properly framed within longer-term context short circuits the perilous emotions of greed and fear.



This essential context is easily obtained with charts. While the past several days’ gold action dominates psychology, odds are it isn’t even relevant over a longer time horizon. For my own trading, I generally use 6 months or so to keep my own emotions in check. I don’t worry about any daily selloffs (or get excited about any daily rallies) until a move persists for long enough to actually be material on a 6-month chart.



And though I’m looking back several years in this essay to illustrate gold’s bullish technicals today, the principle remains the same. Gold has been beaten down to very favorable buying levels within the context of its post-panic bull-market uptrend. Traders who can overcome their fears and fight the worried crowd to buy gold and gold stocks at these cheap levels will almost certainly be richly rewarded.

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       April 10, 2012

 

1.   If Warren Buffett was a member of the gold community, would he book losses on his gold stocks now and exit the market?

2.   I’ll suggest that he would be a buyer, not a bailer, and he would be anticipating an enormous rally.

3.   Marking some of the OTC derivatives debt to model has created the illusion that the size of this debt has shrunk. I don’t think much of the OTC derivatives problem has really been solved, and the story of the OTCDs is really now the story of the invisible man.

4.   Or is the story better termed the invisible bomb?  

Managing Expectations: Why Gold Should Thrive

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

It was a challenging week for gold investors. Although the yellow metal has been on a spectacular 11-year bull run, recent strength in the economy has some thinking gold’s heyday is over.

As I often say, investing, like life, is about managing expectations—even throughout gold’s decade-long rise, price action over the short term can go both ways. It helps to look at what happens after short-term drops. For example, looking at the past decade of one-day 5 percent declines in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.

Gold and China: Where the Bulls and Bears Square Off

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

To paraphrase the great Steve Martin, today’s investors are very passionate people and passionate people tend to overreact at times. An overreaction is exactly what’s happened in gold and global markets in recent weeks. While market bulls have been sniffing out data points to support their case, market bears have continued to take a glass-half-empty approach.

Gold and China are two areas that have been caught in the bear trap this week, but we believe the gold and China bulls still have room to run.

Short-Term Challenges for Gold

Rising bond yields, a stronger U.S. dollar and an improving U.S. economy have squelched expectations for a third round of quantitative easing (QE3) and consequently, spelled trouble for gold. Since late February, gold has declined more than 7 percent.

As confidence improves, UBS says the yellow metal is losing the dual role of safe haven and risk asset: “Gold is moving off center stage, while growth assets are moving to the fore.” Earlier this month, we saw the largest weekly contraction in long gold positions on the Comex since 2004.

As I wrote in my blog this week, the selloff has pushed the price of bullion below its 200-day moving average for only the 30th time over the past 10 years. Over this time period, gold has declined on average 2.1 percent over the 10 days following the cross-below date. This means we’re likely only one-third into the correction in terms of price and duration.

Gold Juniors to Explode?

 

Over the course of gold’s bull, the companies that explore for and mine this metal have greatly prospered. The gold-stock sector has thus been one of the top-performing in all the markets over the last 10+ years, and its investors have been richly rewarded. But this last year or so has been a tough one, one that sure has tested investors’ mettle.

 

Gold stocks had been doing great since their panic lows in 2008. Measured by the venerable GDX Gold Miners ETF, gold stocks were up nearly 300% to their late-2010 highs. This well outpaced the gains of both the general markets (+86% as measured by the S&P 500) and gold (+100%) over this time. But once 2011 rolled around, gold stocks’ powerful upleg started stalling out. Even though gold prices stayed strong, the gold stocks succumbed to weakening global equity markets and a weakening commodities patch.

 

15 months later, now entering Q2 2012, gold has held steady and the S&P 500 has enjoyed an excellent two-quarter run that has brought it to new cyclical-bull highs. These conditions should have boded well for gold stocks. But as you can see in the chart below, they continue to languish in their slump. And the juniors in particular have been getting crushed!

Gold Juniors Cobra Coil

Mar 27, 2012  

1.   Mainstream media tells you that the Dow soared yesterday. Maybe it did, against the dollar. Against gold, the Dow fell. Please click here now. Gold is potentially set to outperform both the dollar and the Dow, in a very big way, in a very short amount of time.

2.   The same is true for silver. I talked yesterday about what I’ve termed the “wedgification” of the gold chart. Wedgification is not a real word. It is a term I coined, like “head and shouldering”, to describe the process where one chart pattern displays fractal-like action, morphing repeatedly into ever-larger patterns of the same type.

3.   A small head and shoulders pattern can become the head of a larger head and shoulders pattern. Likewise, the initial and very bullish gold wedge has just become overpowered by an even larger wedge.

4.   In the case of silver, there is a process going on that I’ve termed “rectangularization”. Please click here now. Note the black supply line that I’ve highlighted at point “A” on the chart.

Europe Stock Recovery

The world’s stock markets are increasingly interrelated.  The psychology of traders, which drives most short-term price action, is continuously shaped by the nonstop torrents of global newsflow.  So even Americans can no longer afford to ignore what is going on in overseas markets.  And the influence of European stock markets in particular is large and growing, making their recovery well worth watching.

Out of all foreign markets, the major European ones easily have the biggest impact on the US stock markets.  This makes a lot of sense for a couple reasons.  Europe’s crisis of confidence ignited by its excessive government spending has made it the primary focus of worry in the past couple years.  The profligate European countries’ sovereign-debt woes have increasingly dominated traders’ attention.

But over the long run, geography is even more important.  As the world rotates, the European markets are the last to experience the trading day before the US markets open.  So in those critical couple of hours before the US open, which often set the tone of our entire trading day, futures traders carefully consider and react to European developments.  Then the final couple hours of European trading overlap initial US trading, cementing Europe’s influence.

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Weekly Market Update Excerpt

Mar 16, 2012

Morris Hubbartt

US Dollar Bear Arc Chart

• Trade deficits are historically negative for any currency.  The latest U.S. trade deficit numbers show further deterioration.  The January deficit widened sharply to a multi-year high of $52.6 billion, up from a revised $50.2 billion in December.  We are servicing a welfare state while spending $52 billion more than we produce.