That’s a very simple statement, but it’s backed by three powerful points:

• Commodities tend to do well when more popular investments (with retail investors) are doing poorly, and when economic conditions are less than ideal.

• When the typical economic underpinnings are at play, a “Secular Bull Market” for commodities tends to last for about 17 years. And right now, the underpinnings are far from typical – and may even be exemplary, meaning this bull-market run could last a lot longer than the norm.

• And last, but not least, we’re only about nine years into this commodities bull market, meaning that there’s probably a lot more room to run – maybe eight years, and very like even more.

Amazingly, this powerful notion of the “Secular Market Cycle” – despite its tremendous profit potential – is largely unknown to the investment masses, and is rarely discussed by the mainstream business news media. Indeed, it’s so taken for granted that it’s almost a market secret…

If you’re a long-term investor, however, you’ll ultimately realize it’s one of the most lucrative strategies you have in your investing arsenal. And most amazing of all is that it’s easy to understand, easy to deploy and easy to profit from.

Let me explain.

Investing in Commodities & The Secret of the Secular Market Cycle

Why is this commodity investing strategy so special? Well, with a finite time to invest for your retirement, it’s crucial to recognize and understand what we like to refer to as the “Secular Market Cycle,” or “Secular Cycle,” for short.

As the chart shows, a Secular Cycle, from peak to trough, typically lasts about 17 to 20 years on average (the period depicted by the chart ends in 2004, but still perfectly illustrates our concept).

And there are essentially two types of cycles:

• The “Secular Bull Cycle,” during which regular stocks increase in value, and have their Price/Earnings (P/E) ratios (earnings multiples) expand. That means that stocks get more expensive.

• And the “Secular Bear Cycle,” during which stocks tend to experience a decline in both price and valuation, with P/Es that contract. At best, stock prices move sideways over an extended period, but still see their P/E multiples shrink, since corporate earnings are growing at a time when stock prices are stagnant.

For investors, one key problem is that an overall “Secular Cycle,” from trough to peak and back to trough, can take 35 years. That’s a big chunk of a person’s wage-earning years, meaning there’s little room for missteps.

Now, there’s no point in fighting a secular market trend – not if you want your investments to grow.

So it’s essential to determine where we are in the cycle, because that will dictate expected returns over the following decade or two. And since most people only spend about 40 years of their lives investing for retirement, not knowing about the “Secular Cycle” – much less where we are right now in the cycle – leads to guesswork, mistakes and losses, instead of the clear planning that will generate the best investment decisions and, ultimately, the biggest profits.

The last commodity cycle ended around 1980. Essentially, a prolonged period of high commodity prices encouraged producers to over-develop their resources. Demand never fell off. Instead, there was a massive oversupply, and the commodities party eventually ended. Prices got pushed off a cliff, so the entire sector became lean in a hurry as profit margins imploded.

We now know how long a typical Secular Bull or Bear market will last years. We also know that the last Secular Commodity Bull was launched roughly around 2000. That allows us to conclude that we’ve easily got between eight and 11 years to go before supply catches up with the burgeoning global demand that we’re seeing right now.

Investing in Commodities – Profit Plays to Consider Now

With class over, it’s time to put your newfound insights to work, searching out ways to earn the outsized profits that will be available from the Secular Bull Market for investing in commodities.

If you prefer individual stocks, you have to get to know BHP Billiton Ltd. ADR (NYSE:BHP). This $140 billion resources behemoth is the largest diversified mining company on earth. With an enviable balance sheet and cash flow, this producer of base metals, precious metals, diamonds and energy is way ahead of the pack. With a current P/E of 11.66, the stock isn’t bargain-basement cheap, but it still represents a good value. Besides, this is a stock that you’ll want to hold all the way to the very end of the Secular Cycle.

Exchange-traded funds (ETFs) and exchange-traded notes (ETNs), on the other hand, provide investors with more direct exposure to commodity prices, as opposed to exposure to the stocks of the commodity-producing companies.

Finally, you’d be wise to get some gold exposure, too – gold miners can also be an excellent hedge against inflationary pressures.

In this case, the Market Vectors Gold Miners ETF (NYSE: GDX) – composed chiefly of major gold miners – offers both company and geographical diversification, while including substantial leverage to the price of gold. GDX is based on the AMEX Gold BUGS Index (HUI), which represents a portfolio of 15 major gold mining companies that do not hedge their gold production beyond a year and a half.

In the next couple of years, as U.S. and overseas economies recover, commodities producers will pay the price for recent major cuts in production, development and exploration – discovering it will be very tough to boost output even as global demand soars.

Shrewd investors will reap the benefit of those decisions: Those shortages will persist, providing quite a tailwind for soaring prices.

Just make sure that your sails are fully deployed.

The bottom line: As you go about rebalancing your portfolio – or continue rebuilding it as a result of the financial-crisis carnage – make sure to include room for a solid natural resources allocation.

Source: Investing in Commodities: How to Buy Gold During Secular Market Cycles

There’s never been a better time to invest in commodities. That’s a very simple statement, but it’s backed by three powerful points:

• Commodities tend to do well when more-popular investments (with retail investors) are doing poorly, and when economic conditions are less than ideal.
• When the typical economic underpinnings are at play, a “Secular Bull Market” for commodities tends to last for about 17 years. And right now, the underpinnings are far from typical – and may even be exemplary, meaning this bull-market run could last a lot longer than the norm.
• And last, but not least, we’re only about nine years into this commodities bull market, meaning there’s probably a lot more room to run – probably eight years, and very like even more.

Amazingly, this powerful notion of the “Secular Market Cycle” – despite its tremendous profit potential – is largely unknown to the investment masses, and is rarely discussed by the mainstream business news media. Indeed, it’s so taken for granted that it almost a market secret.

If you’re a long-term investor, however, you’ll ultimately realize it’s one of the most lucrative strategies you have in your investing arsenal. And most amazing of all is that it’s easy to understand, easy to deploy, and easy to profit from.

Let me explain.

The Secret of the Secular Market Cycle

Why is it so special?  Well, with a finite time to invest for your retirement, it’s crucial to recognize and understand what we like to refer to as the “Secular Market Cycle,” or “Secular Cycle,” for short.

As the chart shows, a Secular Cycle, from peak to trough, typically lasts about 17-20 years on average (the period depicted by the chart ends in 2004, but still perfectly illustrates our concept). And there are essentially two types of cycles:

• The “Secular Bull Cycle,” during which regular stocks increase in value, and have their Price/Earnings (P/E) ratios (earnings multiples) expand. That means that stocks get more expensive.
• And the “Secular Bear Cycle,” during which stocks tend to experience a decline in both price and valuation, with P/Es that contract. At best, stock prices move sideways over an extended period, but still see their P/E multiples shrink, since corporate earnings are growing at a time when stock prices are stagnant.

For investors, one key problem is that an overall “Secular Cycle,” from trough to peak, and back to trough, can take 35 years. That’s a big chunk of a person’s wage-earning years, meaning there’s little room for missteps.

Now, there’s no point in fighting a secular market trend – not if you want your investments to grow.

So it’s essential to determine where we are in the cycle, because that will dictate expected returns over the following decade or two.  And since most people only spend about 40 years of their lives investing for retirement, not knowing about the “Secular Cycle” – much less where we are right now in the cycle – leads to guesswork, mistakes and losses, instead of the clear planning that will generate the best investment decisions and, ultimately, the biggest profits.

But in order to see where we are, we need to figure out where we’ve been.  To do that, let’s take a look at a very-long-term chart of the stock market in order to study the historic market trends. Then we’ll look at some other key factors – such as the value of the U.S dollar – to confirm our analysis. This is a process few investors take the time to work through.

Where are we right now?  Well, since about 2000, we’ve clearly entered a Secular Bear Market for general stocks.

All too often, investors read such a statement and conclude that its “game over” for portfolio profits. And that’s just not the case.

There’s an old market adage that says “there’s always a bull market somewhere.” That’s true even today, in the midst of the worst financial crisis since the Great Depression. Even if there’s a Secular Bear Market for stocks, it’s very likely that you’ll find a Secular Bull Market forcommodities. So all you really need to do is to focus your investing efforts on the hard-asset sectors.

The Makings of a Secular Commodity Cycle

The last commodity cycle ended around 1980.  Essentially, a prolonged period of high commodity prices encouraged producers to over-develop their resources.  Demand never fell off.  Instead, there was a massive oversupply, and the commodities party eventually ended.  Prices got pushed off a cliff, so the entire sector became lean in a hurry as profit margins imploded.

As you’ve probably guessed, exploration soon ground to a halt.  And little or no money was invested to expand production.  Over the next two decades, investors rejected hard assets.

Over time, known resource reserves were continuously plundered, and finally gave out about nine years ago. At about the same time, the Four Asian Tigers of Korea, Taiwan, Hong Kong and Singapore were already building a gargantuan appetite, and China’s big growth spurt was gaining momentum and growing in magnitude.

The situation has only gotten worse, with global commodities demand continuing to advance – even in the face of sapped inventories.

The Three Catalysts for Major Commodity Profits

We now know that a typical Secular Bull or Bear market will last 17-20 years.  We also now know that the last Secular Commodity Bull was launched roughly around 2000.  That allows us to conclude that we’ve easily got between eight and 11 years to go before supply catches up with the burgeoning global demand that we’re seeing right now.

Yet according to such renowned market experts as author and investing icon Jim Rogers, a number of “wild cards” are in place this time around, meaning this bull market in commodities may have a lot more room to run than its more-typical predecessors. Three factors in particular are extremely bullish for commodities investors:

• Global Infrastructure Spending: The Organization for Economic Cooperation and Development (OECD) last year estimated that worldwide investments in power-generation, water and transportation infrastructure projects would exceed $40 trillion by 2030 – and that was before countries around the world enactedhundreds of billions of dollars in stimulus-spending programs.

• Improving Worldwide Living Standards: About half the world’s 6.7 billion inhabitants are simultaneously pushing to improve their living standards, a fact that by itself stands to create a commodities demand shock never before seen – enough by itself, in fact, to extend the secular commodities bull by five additional years.

• Modernization Efforts in Major Markets: The modernization initiatives in China, India, Brazil, Eastern Europe and other portions of Asia are extremely bullish for commodities prices.

So if you’re looking for a place to stash your cash for the next 12-15 years, look no further: Commodities are the key profit play to make.

Two Arguments Against Low Current Prices

Unless you’re Rip Van Winkle, or had taken up residence in Biosphere 2, you know that the global financial markets suffered through a panic sell-off, and that we’re mired in one of the worst economic downturns in decades.

We also know that many investors sought refuge in U.S. Treasury securities. In order to buy Treasuries, investors throughout the world first bought U.S. dollars, driving up their value in relation to virtually every other major currency. That anomalous and unsustainable U.S. dollar spike hurt commodities, as they are all priced in terms of dollars.

The fear of a deep worldwide recession – or perhaps even a depression – served to temporarily frighten investors out of commodity plays, since the prevailing wisdom was that the global malaise would cause demand for natural resources to plunge. That, too, dampened commodity prices.

But investors who right now fear commodity plays are looking at this from the wrong vantage point: Instead of representing a dangerous point, the situation now at hand is nothing less than an extraordinary opportunity to either make their first foray into commodities, or to add to existing positions during periods of exceptional weakness.

What investors need to understand is that – in the last seven months or so – they have been witness to an impressively quick and coordinated adjustment on the part of commodity producers.  No time was wasted to pull the plug on unprofitable production, suspend near-term new production, or slash capital spending or investments in all forms of exploration.

Right now, most commodities producers are operating with little or no spare capacity. The fat’s been trimmed, and prices are down a third from this time last year.

It’s a situation that just can’t last – for two very simple reasons:

• First, world demand can’t be reversed on a dime. At least half the world continues to move forward with modernization initiatives. Massive infrastructure efforts continue unabated. And governments from both developed and developing nations are ensuring that this infrastructure-modernization train doesn’t get derailed.

• Second, central governments have recently put on a show of unprecedented fiscal cooperation, unveiling colossal bailout and spending plans. The United States ($787 billion) and China ($586 billion) alone have unveiled stimulus packages worth a combined $1.37 trillion. The addition of all that newly printed money means there are even more dollars chasing a still-fixed quantity of goods. And that can lead to only one outcome: A big increase in commodities prices.

We’ve become used to seeing prices increase. Price increases are merely a fact of life.  That’s why we see pay raises each year; we’re trying to compensate for the prices that are rising all around us.

But the magnitude of recent money-supply increases dwarfs the benign, garden-variety annual price increases of 3% to 6% that we’ve grown used to seeing. In the last year alone, the U.S. Federal Reserve has actually doubled the U.S. monetary base. That can only lead to serious inflation, perhaps even hyperinflation.  This will cause the value of the U.S. dollar – which has been eroding since 2001 – to decline at an even-more-frenetic pace. Over time, in turn, this erosion in the value of the dollar will lead to a big increase in the prices of many goods, particularly commodities imported from abroad.

That’s yet another reason why investors must consider resources of all kinds.

Profit Plays to Consider Now

With class now over, it’s time to put your newfound insights to work, searching out ways to earn the outsized profits that will be available from the Secular Bull Market in commodities.

If you want an automatically diversified approach, check out the various resource sector mutual funds available to you.  That can be a great starting point.  Make sure to look at each fund’s individual holdings, which will give you a feel for that fund’s focus, and that will also help you get more familiar with the individual companies and what they do.

If you prefer individual stocks, you have to get to know BHP Billiton Ltd. (NYSE ADR: BHP).  This $140 billion resources behemoth is the largest diversified mining company on earth.  With an enviable balance sheet and cash flow, this producer of base metals, precious metals, diamonds and energy is way ahead of the pack.  With a current P/E of 11.66, the stock isn’t bargain basement cheap, but it still represents a good value. Besides, this is a stock that you’ll want to hold all the way to the very end of the
Secular Cycle.

Exchange-traded funds (ETFs) and exchange-traded notes (ETNs), on the other hand, provide investors with a more-direct exposure to commodity prices, as opposed to exposure to the stocks of the commodity-producing companies.

The broadest exposure you can get is probably through the ELEMENTS Rogers International Commodity Index Total Return ETN (NYSE: RJI).  RJI, based on the index built by the investing-guru Rogers, himself, is comprised of 34.9% agriculture, 21.1% metals, and 44% energy.  Another viable option is the PowerShares DB Commodity Index Fund (NYSE: DBC).  While less diversified – with 22.5% agriculture, 22.5% metals, and 55% energy – it boasts large trading volume.

You can also get exposure through some of the ETFs that focus individually on agriculture, coal, nuclear power, and steel-related companies.  Van Eck’s Market Vectors’ suite of ETFs – such as its Market Vectors Agribusiness ETF (NYSE: MOO) – is a great place to start.

Finally, you’d be wise to get some gold exposure too.  Gold miners could be an excellent hedge against the enormous inflationary pressures thatMoney Morning has repeatedly warned investors to expect. In this case, the Market Vectors Gold Miners ETF (NYSE: GDX) – composed chiefly of major gold miners – offers both company and geographical diversification, while including substantial leverage to the price of gold.  GDX is based on the AMEX Gold BUGS Index (HUI), which represents a portfolio of 15 major gold mining companies that do not hedge their gold production beyond a year and a half.

The bottom line: As you go about rebalancing your portfolio – or continue rebuilding it as a result of the financial-crisis carnage – make sure to include room for a solid natural resources allocation.

In the next couple of years, as U.S. and overseas economies recover, commodities producers will pay the price for recent major cuts in production, development and exploration – discovering it will be very tough to boost output even as global demand soars.

Shrewd investors will reap the benefit of those decisions: Those shortages will persist, providing quite a tailwind for soaring prices.

Just make sure that your sails are fully deployed.

Source: The “Secret” Investing Strategy That’s Your Best Bet For Commodity Profits

Editor’s Note: If you’re new to the commodities-investing arena, and are uncertain about the landscape – or even if you’re an “old hand” at natural-resource stocks, but want some insights into the new profit plays and new players – consider hiring a guide: Money Morning Contributing Editor Peter Krauth , a recognized expert in metals, mining and energy stocks, is also the editor of the Global Resource Alert trading service, which ferrets out companies poised to profit from the so-called “Secular Bull Market” in commodities. A former portfolio advisor, Krauth continues to work out of resource-rich Canada, which keeps him close to most of the companies he researches. Against the growing global financial malaise, Krauth says that commodities are among the most-profitable and least-risky investments available, and notes that this may well be the most powerful bull market for commodities we’ll see in our lifetimes. He makes a strong case. To read more about his strategies, and the sector plays he likes the most, please click here. ]]> http://www.contrarianprofits.com/articles/the-%e2%80%9csecret%e2%80%9d-investing-strategy-that%e2%80%99s-your-best-bet-for-commodity-profits/18915/feed 0 http://www.contrarianprofits.com/articles/and-then-theres-thistuesday-april-14th-2009/15572 http://www.contrarianprofits.com/articles/and-then-theres-thistuesday-april-14th-2009/15572#comments Tue, 14 Apr 2009 21:20:22 +0000 Ed Steer http://www.contrarianprofits.com/?p=15572 Both gold and silver rose in Sunday evening trading on the Globex [counterparty...Western Pacific Ocean]. The peak prices in Far East trading occurred around lunchtime in Hong Kong. From there, both metals drifted slightly lower…and remained there all through European trading until the Comex open in New York…then away they both went.

Gold managed a $10 rally before some not-for-profit seller showed up at 9:15 a.m. Eastern time. Once the London p.m. gold fix was in, gold rallied again…making it a hair above $900 for a few seconds…before some other [probably the same] not-for-profit seller showed up. From there it got sold off into the close.

Silver’s 8:00 a.m. rally on the Comex was like a moon shot…and heaven only knows how…

Both gold and silver rose in Sunday evening trading on the Globex [counterparty...Western Pacific Ocean]. The peak prices in Far East trading occurred around lunchtime in Hong Kong. From there, both metals drifted slightly lower…and remained there all through European trading until the Comex open in New York…then away they both went.

Gold managed a $10 rally before some not-for-profit seller showed up at 9:15 a.m. Eastern time. Once the London p.m. gold fix was in, gold rallied again…making it a hair above $900 for a few seconds…before some other [probably the same] not-for-profit seller showed up. From there it got sold off into the close.

Silver’s 8:00 a.m. rally on the Comex was like a moon shot…and heaven only knows how high the price would have gone [certainly north of $13] if the same not-for-profit seller hadn’t showed up at exactly the same 9:15 a.m. time. Silver got sold off a hair going into the London p.m. gold fix…rallied again, and made a high of $12.90 before being sold off a bit into the close.

click to enlarge

Trading volume in both metals on Monday was extremely light…vapours mostly. All the gains [and the 9:15 and N.Y. lunch time price cappings] were done on a few hundred contracts in silver and a few thousand in gold. It’s always encouraging to see decent price gains on a low volume day. The HUI didn’t finish on its high of course, but we’ll take the gains regardless.

Open interest for Thursday’s trading was a bit of a surprise. Gold o.i. fell 1,026 contracts to 333,481. That’s on top of the 10,422 contract drop on Wednesday. And silver fell a fairly significant 1,063 contracts on Thursday…to 91,548. That’s also on top of the 490 contract decline on Wednesday. Thursday’s o.i. declines…like the declines on Wednesday…were counter to those two days’ respective price action….so I consider it to be data deliberately held back so that it wouldn’t be reported in Friday’s COT report. The cut-off for Friday’s report was at the close of business last Tuesday…and this Friday’s cut-off is at the end of trading today.

As it stands, the Commitment of Traders report was very positive anyway…but would have been even more so if the withheld data had been reported in a timely manner. In silver, the Commercial traders [all bullion banks] decreased their net short position by a substantial 3,522 contracts. This was at the expense of the tech funds in the Non-Commercial category and the small traders in the Nonreportable category. They decreased their net long positions by 2,946 and 576 contracts respectively. If one were to include the 1,553 contracts deliberately not reported, the COT for silver is now back to readings that existed when silver was under $9 in November of last year…except now the price is back to almost $13 this time. As of last Tuesday…the cut-off for Good Friday’s COT…the bullion banks were net short 147.8 million ounces of silver…and less than that now. The full-colour graph of the silver COT is linked here.

In gold, things are not quite as rosy…but they have improved considerably in this latest COT report. In the Commercial category, the bullion banks have decreased their net short position by a huge 28,703 contracts. This was, of course, at the financial expense of the tech funds in the Non-Commercial category and the small traders in the Nonreportable category. They reduced their long positions by 27,047 contracts and 1,656 contracts respectively. As of last Tuesday, the bullion banks had a net short position in gold of 15.3 million ounces. Even if you include the entire two days’ worth of data that weren’t reported in a timely manner [another 11,448 contracts], the downward-revised net short position would only decrease by 1.1 million ounces to 14.2 million ounces [1 contract=100 oz. x 11,448 contracts]. At the bottom, back in early November [the Nov. 11th COT to be precise], the bullion banks were net short about 6.9 million ounces. That number is 7.3 million ounces [73,500 Comex contracts] below where we sit now. The full-colour COT gold graph is linked here.

That’s why I [and Ted Butler] say that there is such a dichotomy between silver and gold. Silver is pretty much cleaned out and is the closest to the bottom of the barrel it’s been in a very long time [years...not just since last November]. This is hugely bullish. But as I’ve been saying for weeks…if JPMorgan (NYSE:JPM) and HSBC USA (NYSE:HBC) put their minds to it, gold could still get creamed pretty good…taking silver with it. When the bullion banks [the Commercials] were sitting at that net short position of 6.9 million ounces…gold was sub-$700. BUT can they do it? Will they do it? Nobody knows…except JPMorgan and HSBC.

As the usual N.Y. commentator said “…further liquidation is clearly possible. This is the opinion of John Reade of UBS, rather surprisingly publishing from London on Easter Monday. Noting a 3.32 million ounce fall in the CFTC spec long to Tuesday, April 7th…[2.1 million liquidated longs, 1.08 million ounces new shorts] and a further 1.1 million ounces of open interest cuts since then, he nevertheless is cautious, based on chart considerations.” [It's hard to believe that John Reade and I would agree on anything...but there it is! - Ed] The N.Y. commentator chimes in with his own opinion…”I seriously doubt this. The premium news from the various last-resort buyer markets in the East has–admittedly [only] in the last few days–been too positive. But, although gold was for once fairly steady into the close, gold shares were dispiritingly soft: the HUI closed up 2.36% and the XAU up 1.6%, but both were weakening ominously at the end.”

I just can’t believe that they can do it either…at least not those kind of lows. However, the 200-day moving average in gold is still sitting unbroken to the downside. As I said last week, and Ted Butler agrees, JPMorgan and HSBC could have taken out that moving average with ease at that time…but they pulled their punches. Why they chose to do so is a big question mark. But despite this ‘doom and gloom’ commentary, we could get a big move to the upside in both metals if the bullion banks decide to let the price run for a while. But, if we do get a big hit to the downside, there will be no doubt as to who is doing it…and why they’re doing it. So…we wait and see how this plays out. Here’s the 1-year gold chart so you can see what I’m talking about.

click to enlarge

Also released on Friday was the CFTC’s Bank Participation report for April…for positions held [in gold and silver] at the end of trading on Tuesday, April 7, 2009…the same day as the last Commitment of Traders report. Because of that, we can compare these two reports against each other. Here are the highlights…or lowlights…depending on your point of view…

Two U.S. banks are short 28,492 Comex silver contracts. They hold zero long positions. These 28,492 contracts held short represent 30.6% of the entire Comex open interest, or about 45% of the entire Comex silver market. To cut to the chase, two U.S. bullion banks are short about 45% of the entire Comex silver market. The U.S. banks are JPMorgan and HSBC USA. Non-U.S. banks [15 in all] are long 9,341 Comex contracts and short 2,285 Comex contracts…for a net long position of 7,056 Comex contracts.

In gold, three U.S. banks are short 105,854 Comex contracts and long 1,206 Comex contracts, for a net short position of 104,648 Comex contracts. This means that three U.S. bullion banks are short 10.5 million ounces of gold on the Comex. As I said in a previous paragraph, the Commercial [bullion banks] net short position in last Tuesday’s COT was 15.3 million ounces. This means that three U.S. banks [JPMorgan and HSBC and one other in a very minor way] hold two thirds of that entire net short position. Non-U.S. banks [21 in all] hold 44,894 Comex long positions and 32,849 Comex short positions…for a net long position of 12,045 contracts.

In a nutshell, U.S. banks [primarily JPMorgan and HSBC] are short four silver Comex contracts for every Comex silver long held by a foreign bank…and in gold, U.S. banks are short about nine Comex contracts for every Comex long held by foreign banks.

Armed with this data, how difficult is it to figure out who controls gold and silver prices?

The CFTC produces this report, and even with the data contained in it, they still won’t admit that there’s anything illegal going on. The concentration of these short positions proves manipulation. Here’s the URL to the April Bank Participation report. It shows ‘bank participation’ for all commodities and it’s really easy to follow. Silver and gold are about two thirds of the way down the page. The link is here.

In other news, there were no Comex deliveries on Monday in either gold or silver. We are well along in the April delivery month for gold…and as of the close of business on the Comex on Thursday, there were still 2,282 contracts to be delivered. At the Comex-approved precious metals warehouse, silver inventories declined another 411,222 ounces on Monday. The U.S. Mint updated its gold and silver eagle production yesterday as well. One-ounce gold eagle mintings rose another 36,500 to 68,500 for the month. In silver eagles, another 533,000 were minted, bringing April’s total up to 1,210,500. There were no changes in either GLD or SLV.

I heard rumours about ‘green shoots’ sprouting and the beginning of signs of a turnaround in the economy over the weekend. I beg to differ. Here’s a leading indicator that you can’t fool…and so far it isn’t fooled. It’s the Baltic Dry Index. It’s little bear market rally is officially over…and it’s currently sitting at 1,478. When this Index begins to show permanent signs of life…then we’ll talk about a recovery.

click to enlarge

Two stories and one video today. The first story was posted at finance.yahoo.com. The headline says it all…”Michigan Facing ‘Economic Katrina’ If GM Files for Bankruptcy, Rep. McCotter Says”. It’s a quick read…and I thank Craig McCarty for sending it along. The link is here.

In a story I dug up over at Bloomberg yesterday, is this headline ” ‘Lehman Shock’ Fuels New Wave of Homeless in Osaka”. With the massive production slowdown in Japan over the last six months, it won’t be long before the Japanese begin to develop even more serious social problems. No wonder everyone is betting that they will devalue the yen. The link is here.

And lastly is this terrific PBS interview by Bill Moyers with whistleblower William Black who discusses the systemic fraud on Wall Street and in Washington, D.C. The losses in IndyMac alone equal to the total losses of the late 1980s’ S&L crisis. I never thought I would hear anything like this on any media outlet in the U.S.A…even PBS! It was shocking! I again thank Craig McCarty for the story. The half-hour program is a ‘must watch’ and the link is here.

Myron Scholes, the Nobel prize winning co-creator of the eponymous Black-Scholes-Merton option pricing model, observed that the derivative markets have stopped functioning and are creating problems in resolving the global financial crisis. Scholes was quoted as saying that: “[The] solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and … start over…” ISDA, the beleaguered derivatives industry group, predictably countered limply that: “…the notion that you would, as he said, blow up, the business in that way is just misguided.” – Bloomberg…March 6, 2009

So, what’s in store for this week? How long will the Dow rally last in the face of overwhelming bad news? The same could be said for the U.S. dollar. As for gold…JPM and HSBC are still short a whole pile of it. Silver is pretty much ready to blast off…but what happens to gold will be the key…and to tell you the truth…I haven’t the foggiest idea which way the PM market is going to go. However, yesterday’s price capping action in both metals did nothing to warm the cockles of my heart. All we can do is wait it out.

See you on Wednesday.

Source: And Then There’s This…Tuesday, April 14th, 2009

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By the time the smoke had cleared less than half an hour later, gold was down about $27 and silver got creamed for around 75 cents…both with monstrous volume. This is the most blatantly obvious bear raid I’ve seen since the one we had a week ago Monday…LOL!!! I’ve seen bigger price declines in both metals in a single day, but not in such a short time period. The gold cartel finally gets the magic 10/10 “Waterfall Award”…because it’s as straight a line as you’ll ever see. But silver spoiled the show, and I felt compelled to dock the boyz a bit because they didn’t get the price down more than a dollar (even thought the chart was just as pretty as gold’s)…so the boyz over at Scotia Mocatta and HSBC (USA) Ltd. (HBA.PD) only get a 9.9/10. Options expiry on the Comex is tomorrow at the close of business, so they’ve got a couple more days to get it right.

It’s a good bet that virtually every long that was placed last week by speculators and the tech funds got stopped out by the raid yesterday morning. Even Dennis Gartman, who had placed another bet on Friday (and maybe added to his position early on Monday morning if he was really unlucky), got blown out. This is the third time in the last couple of months that he’s been taken out within days (if not hours or minutes) of placing a long bet on the gold market. As one well-known NY gold commentator said yesterday; “Some of gold’s friends will find this amusing…but that is foolish. The question is, what is present in the market which causes this very well informed and alert technical/momentum player to go long immediately before unheralded and massive selling hits the market?” Right in front of options expiry is never a good time to go long either precious metal. The Cartel pulled this very same trick before options expiry in March, April, May…and now June. Dennis, try July 1st…right after first day notice for delivery into the July contract…and do not buy on margin!

With last week’s break-out in both metals now firmly and thoroughly crushed, I’m sure that the powers that be would love both gold and silver to go to sleep over the summer months. Both metals are now safely below their respective 20- and 50-day moving averages once again. We’ll have to see what happens, but I wouldn’t bet any money that these metals will cooperate, as the bullish triangles still look like they are about to bust out to the upside…like they tried last week. Let’s see what July brings once month end and quarter end are out of the way.

The 200-day moving averages still lurk below…although not too far below…and from here it would be a virtual non-event if they were taken out. The cartel can do it any time they want. If you don’t believe me, please review yesterday’s gold and silver charts…or the previous Monday’s. One more day like either of those would be all that it would take.

Open interest numbers for Friday trading in gold and silver showed that gold o.i. rose 2,572 contracts and silver o.i. fell 299 contracts. If all trades that occurred on Monday are reported in a timely manner, the gold open interest numbers for Monday should be quite something…and should make the COT this Friday.

I mentioned in my report on Saturday that Friday’s Commitment of Traders report “was a yawner.” However, I neglected to point out the concentration ratios of the ‘eight or less’ traders in the Commercial category that Ted Butler gave me. These traders are, of course, the market making bullion banks. As of last Tuesday’s cut-off, these banks were short 78.6% of the entire Comex silver market and 82.8% of the entire Comex gold market. Once again, here’s the LBMA members list. The first eleven names that are on that list are the ‘market makers’. I would be prepared to bet some serious coin that the ‘8 or less’ traders (for both gold and silver) will be found almost exclusively in this eleven name list…and that they are all the same firms. The link is here.

In gold news I see that Australia’s gold production is down 7% year/year…and Vietnam suspended gold imports to tame the trade deficit. Vietnam has already imported 60 tonnes of gold so far this year…a 100% increase over the same period last year. Lastly, Dubai reported an 18% rise in gold sales in May.

And also of extreme interest was the action of the HUI yesterday, which finished in positive territory despite the crucifixions of both monetary metals. Although I don’t wish to look a gift horse in the mouth…after eight years of involvement with GATA (Gold Anti-Trust Action Committee)…we (including this writer) have a tendency to be suspicious of such counterintuitive stock moves whether the precious metals prices are falling (or rising). It wouldn’t be the first time that the boyz loaded up on cheap shares while everyone else was unloading theirs, so they can use them to sell into (and blunt) any upcoming major precious metals stock rallies…especially at the very peaks…like what happened in March just before the gold price got creamed, where the shares sold off heavily (and counterintuitively) the day before the top. But hey…maybe they’re just trying to make a buck on the upcoming rally!

After all this commentary I only have one story today. It’s entitled “Asia Clearing Union to Introduce Euro Alongside U.S. Dollar to East Payment Settlement”. This basically gives the euro equality with the US dollar. The story is linked here.

It took everything that the President’s Working Group had in their little bag of tricks to keep the house of cards from falling over yesterday…dollar up, US futures markets spun positive, Japan’s huge opening loses blunted, gold and silver crushed. They tried the same with oil and got stuffed. But ominously, the Banking Index (KRX) got creamed again on the continuing woes of MBIA and Ambac (ABK). It hit a ten year low with yesterday’s close. The 3-year chart is linked here…and it’s ugly.

See you tomorrow.

Source:And Then There’s This… Tuesday, June 24, 2008

Now let’s say, all of a sudden, folks are willing to pay you $6 per hot dog. They’ll buy as many dogs at $6 as you can make. Your profit-generating ability has soared, from $0.50 to $4.50. Now… do you think your business would be worth more to an outside buyer? I think it would… but that’s not how folks see the gold mining industry right now.

America’s largest gold producer, Newmont Mining (NEM), announced its first-quarter earnings last week. The company’s revenue was 60% higher than the quarter one year ago. It sold its gold for an average $933 per ounce during the quarter, up 40% from the same time in 2007. Newmont cut its cost per ounce a bit, but of course, the real kicker was the gold price. People are paying a lot more for Newmont’s hot dogs.

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Do you know what happened to Newmont’s share price? It fell. I could hear Rodney Dangerfield speaking to me from the grave… Newmont got no respect, not even from investors who should know better.

This lack of respect is pervasive across the entire gold industry right now… and it’s giving investors a fantastic opportunity to get into these stocks.

Gold prices have doubled from $427 in April 2005 to about $879 today. Yet the share prices of major gold producers haven’t done much at all. Newmont Mining’s shares appreciated a meager 6% over that same period.

Typically, shares of gold producers give you “leverage” to the price of gold… meaning that if gold doubles in price, gold stocks often quadruple in price. It all comes down to the “leverage effect”…

If Gold Company A can mine gold for $250 an ounce and sell that gold for $300 an ounce, it makes a profit of $50 an ounce. However, if the gold price jumps 50% to $450 an ounce, Gold Company A’s profit per ounce increases from $50 to $200… a gain of 300%.

Now let’s say the price of gold really gets rocking, increasing 100% to $600 an ounce. Gold Company A’s profits increase dramatically… They jump sevenfold from $50 per ounce to $350 an ounce! Of course, Gold Company A’s stock price would explode higher in response to the increased profits.

However, it hasn’t quite worked out that way in the past few years. Due to the soaring costs of fuel, equipment, and upgrading facilities, the costs to mine gold have risen nearly as much as the gold itself!

On May 1, 2006, the AMEX Gold Bugs index (HUI), which tracks the big gold mining companies, closed at 380. Yesterday it closed at 389. The index basically moved sideways… during a period in which gold gained about 32%. As David Galland pointed out in this essay, the gold industry has been busy “digesting” the higher costs it pays to pull gold out of the ground.

But I think the news from Newmont is the latest sign that gold miners are now really starting to rake in the cash… Newmont’s quarterly profit rose 444% over the first quarter of 2007. The elevated gold price is finally kicking in. And the situation is the same with other big miners, including Barrick and Goldcorp… But like Newmont, these stocks are sitting dormant right now.

That’s why I have so many “buy” recommendations in my S&A Prospector portfolio right now. With just a few exceptions, I think gold equities are incredibly cheap. For a relatively conservative portfolio, you should own producers, like Newmont. But for opportunities to make 1,000% quickly, I love prospect generators.