Voicing interventionist sentiments, James Williams, of WTRG Economics, said that, “We had another week of uncertainty, with oil trading more as a currency and inflation hedge than based upon the fundamentals … This will continue to be the case as long as the long-only index funds are allowed free rein in the futures market.”

On the supply side, said it expects global oil demand to grow to 86.88 million barrels per day for 2008, down from the estimate of 86.95 million it forecast in its May report.

OPEC knows that their “ability to increase production over the entire organization is severely limited, if possible at all, so by backing down their demand outlook, they have no reason to have to get into the debate on why they shouldn’t be increasing their supply,” said Neal Ryan, of Ryan Oil & Gas Partners.

Source: Crude Backs Down

And that forecast was put together before the biblical drenching the Midwest suffered in the past week, when another 12 inches of rain flooded already saturated fields.

All this is sending corn futures soaring. Looking at the chart, you can see how corn has gone ballistic. Also, on the bottom of the chart, RSI (a momentum oscillator) has just given a bullish buy signal.

After this latest rainout, many corn farmers will switch to soybeans, which can be planted until the end of June with less impact on yields. And that means the corn that does grow will be much more valuable.

Jurojin already recommended our subscribers go long corn last week — after it bounced higher off of its 50-day moving average. Now, they’re racking up nice open gains, and our first profit target looms dead ahead.

Is it too late to get in on corn? Not by a long shot. We’ve seen this kind of horrible start to the crop year before — in 1993. Then, traders were slow to react to massive flooding.

The best way to play this is corn futures or options on corn futures. If you aren’t in the futures market, you could try the PowerShares DB Agriculture ETF (DBA), which tracks a basket of corn, wheat, soybeans and sugar.
This analysis is brought to you by the Secret Order of Jurojin.

Source: King Corn Retakes the Throne

Bond yields have risen sharply off their four-year lows in mid-March. Core inflation is strengthening. Also, the broadest gauge of money supply, the expansion of credit, is running at a dizzy 16% annualized rate. This data suggests the Fed is way behind the inflation curve and will start raising lending rates this fall.

But could the market be wrong?

I believe this rate hike prediction is WAY too premature. In fact, I’d say the Fed’s not even done easing credit conditions at this point. I’m still forecasting the Fed will hack the Fed Funds rate by at least another 1% before this easing cycle is over. The Fed Funds rate now sits at 2%.

To heal the banking system, the Fed must remain accommodative. Meanwhile, housing is still in a complete freefall and it’s showing no signs of bottoming. That’s yet another industry that can’t afford higher rates. Plus, with the unemployment rate gradually rising since last winter, the Fed will unlikely start cutting off precious liquidity when consumers and companies need cash flow.

Banks are still bleeding losses. It’s becoming increasingly clear that the credit crunch is far from over. Wachovia and Washington Mutual won this week’s booby prize for dropping another bomb on the financial services sector.

Mark my words: the Federal Reserve will sacrifice the dollar in its desperate attempt to revive growth and bank lending. Provided the bond market doesn’t fall apart along with stocks, this strategy should continue for the remainder of 2008.

I don’t expect the dollar to post big losses from these levels, but it won’t post a major bear market rally under these circumstances, either. Eventually, and assuming oil prices come down, the euro will start to deflate along with other European currencies, which I view extremely overvalued against the dollar.

The way to play this sluggish economy is to remain invested in select commodities, including gold, high grade corporate bonds, blue-chip global multinationals (excluding most banks) and Asian currencies, including the yen.

ERIC ROSEMAN, Investment Director

EDITOR’S NOTE: Click here to get an insider’s look at Eric’s commodity portfolio – and find out how to make 600 to 900% off his favorite brand of commodities for 2008.

Source: The Fed’s Not in a Rush to Raise Rates

But we’re not done yet. The Senate Commerce Committee hears today from none other than George Soros, who, according to the Financial Times, will “tell US lawmakers that ‘a bubble in the making’ is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors.”

Not that there aren’t fundamental factors at work in the commodity boom, Soros believes, but the boom is being transformed into a bubble as institutional investors pile into commodity index funds. According to his prepared remarks, “When the idea was first promoted, there was a rationale for it … But the field got crowded and that profit opportunity disappeared.”

“Nevertheless, the asset class continues to attract additional investment just because it has turned out to be more profitable than other asset classes. It is a classic case of a misconception that is liable to be self-reinforcing in both directions.”

As I’ve pointed out before, a primary reason institutional investors are piling into these indices is that they’re shelter from a falling dollar. As fiat paper is inflated into infinity, hedge funds and pension funds seek shelter in real, tanigble stuff.

I’m sure Soros knows this. Whether he’ll actually address this aspect of it today is another matter. Obviously, with such famous trades as his bet against the British pound in 1992, Soros knows a thing or two about falling currencies and how to make money off it. So I’m not really sure what he’ll be getting at today with his testimony.

And here’s something even more puzzling: “Mr Soros will say a crash in the oil market ‘is not imminent’. But he says it is desirable to discourage commodity index investing – or the ‘elephant in the room’ in the futures market – though not with more regulation.”

If more regulation is not the solution — and surely it’s not — what on earth is he doing testifying before a committee that’s looking for scapegoats and excuses for more regulation?

Source: Just What is Soros Getting at?

Then both metals (and a lot of other commodities) got smacked simultaneously. But the boys weren’t through yet! The moment that the London traders closed their doors for the day, another wave of heavy selling showed up on the Comex…triggering more tech fund sell stops in both gold and silver. It was a bloodbath everywhere.

Open interest changes in gold and silver trading for Wednesday are as follows. Gold o.i. fell another 7,783 contracts and silver o.i. was down 74 whole contracts. Today’s COT will show none of this.

In three trading days since the Memorial Day long weekend, gold has been taken to the cleaners for about $55…and silver for about $1.75. In his Tuesday commentary, Ted Butler summarized what happened during the last three days…”While I did not expect this sharp sell-off, its explanation should be clear in hindsight. The dealers (bullion banks – Ed) wanted to reduce their short exposure and rigged prices lower during a thin trading time to get the tech funds selling below the key 50-day moving averages in gold and silver. The commercials (bullion banks – Ed), early this morning, sold a few contracts to get the ball rolling downhill and then pulled their bids until the tech funds starting selling in earnest as the moving averages were broken. Then the commercials bought back all the contracts the tech funds were coughing up. This should be obvious to everyone (save the regulators, who are averting their eyes.).”

I see in an American Press story yesterday that “the CFTC has disclosed that it is six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation.” Really??? I’m sure they’ll let us know if ‘8 or less’ traders are long 81.4% of the oil futures market…just like the ‘8 or less’ traders are short in gold at the moment. The CFTC is all over any suspected long manipulation but ignores short-side corners on the market.

My first story today is from Ambrose Evans-Pritchard, the International Business Editor of The Telegraph in London. Just when Wall Street and the Fed are telling us “the worst is over”, Mr. Evans-Pritchard files this story entitled “U.S. and European debt markets flash new warning signals.” The story is linked here.

The second…and very short…story is from over at miningmx.com and is entitled “Gold de-hedging could reach 10 million ounces in 2008″. The link is here.

The only thing really feared by the rest of the world is that the economic collapse of the US, now sliding into deepening recession, will have drastic effects on their own economies. This is the driving power behind these recent world summits (none of which included the U.S. – Ed). Only closer economic relations between these other nations can lessen the effects of the world-wide effects of the coming US economic depression and financial collapse. – Bill Buckler, the-privateer.com, 24 May 2008

Today is first notice day in gold for the June contract. Once that’s behind us, it’s my opinion that this cartel-orchestrated sell-off in the precious metals will be behind us. Don’t forget that the cartel did exactly the same thing to us in April…and in March too! Do you see a pattern??? If you doubt me, check the chart here. The silver chart is identical.

Today is also Friday, so expect anything…and we at Casey’s Daily Resource Plus will see you here on Saturday to discuss it with you. Have a great weekend.

Source: And then there’s this… Friday, May 30, 2008

Open interest numbers for Tuesday’s take-down in both gold and silver were a bit of a surprise. Gold o.i. only fell 362 contracts and silver o.i. was down 1,429 contracts. That’s not a lot (especially for gold) considering the price damage that was done. The COT on Friday will hopefully tell us more.

I see that SLV…the silver ETF…added another 1.9 million ounces yesterday, and the silver ETF…GLD…sold off another 200,000 ounces.

Looking at the gold and silver charts, I note that the gold price is about $35 above its 200-day m.a. and silver is a little over $1 above its 200-day m.a. Can/will the ‘8 or less’ traders try to get the price down to that level so they can force more tech funds to liquidate their longs? Don’t know, but it wouldn’t take a lot of effort…which you can see by looking at the carnage we had on Tuesday. After the big price correction in May/June of 2006, the 200-day moving averages were reached in the correction of both metals. Will history repeat itself? Here’s the 3-year gold chart for your perusal. The 3-year silver chart looks identical. The link is here.

And…one more thing. June is a big delivery month for gold…and options expiry is less than two weeks away, so if the bullion banks ever wanted to do the dirty, the timing couldn’t be better. We’ll see.

Two more stories today. The first one is the report from the CFTC that the silver market is not manipulated by anyone. Their report in 2004 said the same thing. So I guess the ‘8 or less’ traders holding 79% of all the short positions in both Comex gold and silver, is not a short-side corner on the market. If not…then what percentage is? The headline reads “New Study Finds Silver Futures Market is Functioning Properly”. The link is here.

The second story is from Bloomberg. Paul Volcker has been in the news in the last couple of days. Yesterday he was speaking in front of the Joint Economic Committee in Washington and he had a few things to say that are worth noting. The headline reads “Volcker Says Fed Interventions Risk Political Battles” and the link is here.

If there is a real loss of confidence in the dollar, then I think we are in trouble. That is something that has to watched…..That has to be very much in the forefront of our thinking, without that, we are back to inflation of the 1970s…or worse. – Former Federal Chairman Paul Volcker – 14 May 2008

The news on Bloomberg and Reuters yesterday was terrible. As far as the eye can see, it’s sheer economic, financial and monetary madness out there. It’s impossible to make any sense out of anything, and I’m not going to waste any more mental energy trying to figure it out. It’s probably a good idea if you did the same…and save yourself a lot of grief.

See you tomorrow.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.
Source: And then there’s this…Thursday, May 15th, 2008

Now even Hugh Hefner is having trouble making money from his adult brand of publishing. His Playboy publishing and media empire posted a quarterly loss on weaker TV and publishing revenues reports Yahoo Finance. “The worse-than-expected results illustrate the trouble that Playboy and other publishers and television companies face as more people get their entertainment online, and often for free.”

And that’s the beauty of the ‘net for consumer. A lot of what you fancy with little of what you don’t i.e. paying for stuff. Not so great for the publishers who have been struggling to figure out how to make the internet pay. Expect to see a culling of national newspaper as they stop printing in the next few years and as for TV, well one glance at the schedules tells us the medium is beaten.

Returning for a moment to the subject of ballooning commodity prices… The week-end FT finds an indication of the increases in speculation – the futures market. Commodity futures have increased fivefold in the past three years says John Authors in the FT citing energy consultant, Philip Verleger.

Originally commodity futures were used as a hedging tool for producers against a change in prices, now they are considered an investment in their own right. And The Sunday Times’ David Smith notes “something odd” going on in the oil market following last week’s announcement of a large rise in crude stocks by the US Department of Energy. “Instead of falling, prices hit a new record.” A rampant bull on the charge..? Oil is down a little today to $125 against something unusual in recent times, a stronger dollar.

Continues below …

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And some news closer to home…

The damage caused by rampant commodity prices can be clearly seen in the latest government statistics. UK producer prices rose 7.5% year on year – their fastest pace since 1986. Comments Geoffrey Dicks, and economist with the Royal Bank of Scotland:

“There is a wall of costs out there waiting to dump on the U.K. consumer.”

Recent soundings of sentiment suggest consumers have a good idea of what’s coming. One such dumping looking to be coming soon are higher energy bills. They could rise as much as 46% this year reports The Telegraph.

As for the wider economy it will “skate close to recession” over the next 6-9 months says the British Chamber of Commerce in a new report. Quarterly growth will hover a little above 0% and if oil maintains its current elevated level expect 4% CPI inflation in the second half of the year. Against this backdrop, life doesn’t get any easier for Mervyn King and co trying to coax UK plc. back to at least trend growth with further cuts in interest rates.

More billions in bank losses, today… HSBC plc. revealed another $5bn in bad subprime debt and write downs to take its total losses up to $20bn (how they must rue buying US subprime lender Household International). The bank comments the US is likely to go into recession this year and doesn’t see a US housing market recovery until next year.

On the subject of house price crashes, research from Goldman Sachs finds this is the first suffered in the US since the 1970s based on their definition of a 15% fall in inflation-adjusted prices. During that period most other industrialised countries have suffered at least one and Canada, Finland, Germany, Italy, Japan, Korea Sweden

Switzerland and the UK have had two. Yes, there are still those of us around who remember the value of your home can fall as well as rise.

Finally, some news of our own. This week will be our last. The Daily Reckoning is closing on Saturday but dear readers will continue to hear from us on a daily basis as the Fleet Street Daily from next Monday.

Regards,

Rob Mackrill
The Daily Reckoning

Be the first to comment on this article! Now you can post your thoughts, reactions and views on the topics we talk about.
To comment, click here.

Gold popped a bit on the New York open, but about an hour after that, a not-for-profit seller showed up and escorted the gold price into the same down-trend that silver was experiencing.

Without doubt, if the upward price trends had continued in New York trading, the 20-day moving averages in both gold and silver would have been broken decisively, and the black boxes that the tech funds hold near and dear, would have generated a buy signal. If that had happened, then we would have had serious moves to the upside in both metals…similar to what platinum and palladium had. But with the US$ heading lower and oil screaming higher…and the futures market showing a lousy opening for New York equity markets…it wasn’t allowed to happen.

Both silver and gold recovered most of their “losses”, but the damage had already been done.

Thursday’s open interest numbers were textbook. With strong gains in both metals….gold o.i. rose 5,483 contracts, and silver o.i was up 833. A lot of those long contracts that were put on on Thursday, got stopped out yesterday, and that was one of the reasons that the prices fell as quickly as they did. Once the boys get the avalanche started and the sell stops are hit, it just builds on itself.

And now for the Commitment of Traders report. Surprisingly, silver was almost a yawner. The Non-Commercial/tech funds pitched longs and put on short positions to the tune of about 1,400 contracts. The Commercial/bullion banks reduced their short position by the same amount…give or take. A lot of the drop in open interest for the week (5,447 contracts) was spreads and deliveries. The ‘8 or less’ in the Commercial category of traders now hold 79% of the entire silver short position on the Comex, down from 83% last week. Hey…we almost have a free market in silver now!

But gold was different. The Non-Commercial/tech funds sold longs and went short to the tune of 4,700 contracts…and the Commercial/bullion banks added 7,035 longs, but went another 4,281 contracts further short. In a longish telephone conversation with Ted Butler, he pointed out three things; 1) The net Commercial short position sits at 182,700 contracts. 2) The ‘4 or less’ traders are short 180,600 contracts…about 99% of that amount. 3) This is the first time ever…ever…that the ‘8 or less’ traders have increased their short position on a price decline. There is absolutely no precedent for this and he has no idea what to make of it. Normally, the ‘8 or less’ traders in the Commercial category are covering their shorts as the tech funds in the Non-Commercial category pitch their longs…or go short. Well, not this time! Oh, by the way, the ‘8 or less’ traders in gold now hold 79% of the entire Comex short position in this metal…exactly the same amount as in silver.

I would bet some serious money that the 79% that these bullion banks hold short in both gold and silver, are held by exactly the same institutions. Neither the CFTC/COMEX will enforce the existing commodity laws against them, and the mining companies won’t do a thing on your behalf either. As Ted Butler has said countless times, and I totally agree…until this situation is resolved…nothing else matters in the precious metals world. A serious analysis of the price structure of both metals is meaningless unless it takes this ‘elephant in the living room’ into account…which the vast majority never do.

Let me put this another way. If you or I (plus 7 friends) held a 79% position in any commodity, long or short, against thousands of other traders…would you have to even ask who would be in total control of the price?

And an even bigger question is this one. When the prices of gold and silver finally make it to that magic place where it generates a ‘buy’ signal for the tech funds, who is going to be going short against their long positions…because somebody has to. Will it be the ‘8 or less traders’ who already hold 79% of the entire Comex short position in both metals? How big will the CFTC/COMEX let it get…85%, 89%, 94%…100%? Because if they don’t go short…who will? And another equally important question at that time will not only be who…but at what price?

I have two commentaries today. The first one is a GATA release of a Financial Times article entitled “The Dollar Danger is Not Over Yet.” The link is here.

The second essay is by Doug Noland over at David Tice’s site…prudentbear.com. This is his latest commentary from last night entitled “A New Inflationary Epoch”. Scroll down about three quarters of the way to find it. This is not only a ‘must read’, but I would give it wide distribution as well. The link is here.

Today’s ‘fun’ video is courtesy of a kind reader of my daily rant. I’d like to thank Ron S. a whole bunch for sending this along. It’s a goody! This is one of those “truth is stranger than fiction” stories. Enjoy. The link is here.

The action begins again on Sunday night when the precious metals market open in the Far East. I’ll be sitting in front of my computer screen, beer in hand, and I…and the rest of the CDR+ gang…will be here on Tuesday to report on it.

Enjoy the rest of your weekend.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Check out a chart showing the Q1 2008 action in the CRB Index, a widely tracked basket of 19 leading commodities, versus the S&P 500 from the beginning of the first quarter through Tuesday. The CRB Index is up 11% during that time frame. Meanwhile, the S&P is down over 7%. OUCH! Which would you rather invest in?

Investors are asking themselves this question and voting with their funds. According to a report just released by Citigroup, global investments in commodities rose by more than 20% in the first quarter to $400 billion, helping boost prices as investors sought protection against inflation and a weaker dollar.

The report says that investments in commodity indexes rose $40 billion in the first three months of the year to $185 billion, a larger gain than the whole of 2007.

A “tidal wave of investment flows into commodity markets has further boosted prices,” the Citigroup analysts said, quoted by Bloomberg News. “The weakening U.S. dollar has been the main macro force attracting funds to commodity markets. Other contributors are falling real interest rates and inflation worries.”

How do we square the strong rallies we’re seeing in oil, gold, grains and basic materials with forecasts some are making for a global recession? Answer: Somebody is obviously wrong. You can’t have demand and prices soaring at the same time that a global recession is taking place. Our solution is to follow the money — and bet on commodities. We think the next tidal wave of wealth pouring into commodities could be a real doozy.

Yours for trading profits,

Black Bear
The Secret Order of Jurojin

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