The stock is still a far cry from its record-high level of $83.56, but is only 0% below its 52-week high of $53.46.  Much has changed since then, as the U.S. auto industry is no longer producing the 16 million cars it produced in 2007, nor the 13 million it managed to sell last year.  This year we are looking at some 10 million units sold, according to J.D. Power and Associates, the leading forecaster in the industry.

But there is encouraging news:  The very quick restructuring of both General Motors Corp. (NYSE: GRM) and Chrysler Group LLC, the U.S. Federal Reserve’s efforts to stabilize the financial markets, and the U.S. government’s fiscal stimulus plans have helped keep the economy from falling into a depression.  The Fed’s support for the auto industry included buying auto receivables under the Term Asset-Backed Securities Loan Facility (TALF) program, in order to restart this type of securitization.

Therefore, the paralysis of sales that we saw late last year, when the financial system froze and there was no financing available, has subsided and sales are increasing.  In fact, J.D. Power expects U.S. vehicle sales to increase to 11.5 million units next year, a full 15% pickup from projected 2009 levels.

In fact, we are already seeing an increase in auto sales already, thanks in no small part to the government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers.” So far, CARS has spent some $1.29 billion and Congress has expanded the original $1 billion authorization by another $2 billion.

Total light vehicle sales for July were just shy of 1 million units, a milestone the industry hasn’t topped since August 2008, mostly due to the program’s success.

This shot in the arm on the back of the general cost restructuring that Ford Motor Co. (NYSE: F) is carrying out under Allan Mulally has already prompted Ford to increase production of its Focus model.

Similarly, Chrysler has reported that it is running two plants in overtime and a third shift at another plant just to keep up with demand.  And GM, which is seeing a huge rebound in sales, will add to this by increasing advertising spending and selling new cars on eBay Inc.’s (Nasdaq: EBAY) popular online auction Web site. Most of Wall Street is in “wait-and-see” mode, which gives us more of an incentive to jump in.  But the steel story is not just about cars.

Nucor will not only profit from the remaining $1.75 billion to be deployed through the government’s cash for clunkers program and the general improvement in market conditions, but on the pick-up in government construction in the United States that will result from U.S. President Barack Obama’s massive fiscal stimulus.

Additionally, the company will benefit from the already massive stimuli being deployed in China, Brazil, India and Russia.  And let us not forget Europe, where the European Central Bank will soon consider raising its benchmark lending rate to 1.25% from its current record low of 1% in order to prevent inflationary expectations from building up.

China will achieve more than 8% growth this year, driven by public spending, especially in construction and a strong pickup in auto sales  (up 63.6% in July from a year earlier) and domestic appliances.  All of these have a very high content of steel.

Similarly, India’s gross domestic product (GDP) will grow by more than 6%, barely down from last year’s 6.7% expansion. Auto sales in India jumped 18% last month.  Remember that India’s Tata Motors Ltd. (NYSE ADR: TTM) launched the cheapest car in the world last January and this is likely to work wonders in today’s budget-conscious market.

So what about Nucor itself?

The company reported a second quarter loss of $133 million, which improved over the first quarter’s $189 million loss.  But the key is that volumes are already turning around.

Volumes increased 11% in the second quarter, which allowed the company to increase its capacity utilization from 45% to a still very low 46%.

And this is where the upside lies.

In capital-intensive industries like steel, the very high fixed costs induce very large swings in profits, depending on volumes.  And not only did Nucor see its volumes pick up in the second quarter, the trend should continue accelerating in the third quarter and beyond, thanks to the recent burst in car sales and increased government infrastructure spending.

In addition, prior to the cash for clunkers program, Nucor announced it already expected to see an improvement in its third-quarter results. The company said that many of its customers had run their inventories too low and would need to replenish them just to meet demand.

So, at reporting time, investors could be very positively surprised by Nucor and many other companies in the sector, which will provoke many analysts to increase their stock targets.

And to make the whole story even better, we are counting on increasing inflationary expectations and a weaker dollar, which will continue to drive portfolio managers to hedge this risk in commodity stocks.

That means Nucor, which has been bumping into strong resistance levels since the beginning of January, but making higher lows in every subsequent correction, is likely to break out of its current range with an explosive rally before it even reports third-quarter earnings.

Nucor stock closed down 92 cents, or 1.93%, Friday at $46.79 a share.

Source: Nucor Corporation Will Get Is Due for a Boost from Government Spending

Good day… And a Marvelous Monday to you! A great weekend that was filled with watching my little buddy, Alex, play football, hosting a surprise 30th birthday party for my little girl, Dawn, and a sweep of the Padres by the Cardinals! This week gets cut short with me a the helm, as I head to San Francisco on Thursday. Chris will have the conn on the Pfennig Thursday through Monday.

Well… Who’d a thunk it? Yes, who would have thought that the U. of Michigan Consumer Confidence could turn the markets upside down and spoil the party? Well… It happened on Friday! The U. of Michigan Confidence Survey for Aug unexpectedly dropped to 63.2, from the previous month’s 66 level. The real drop though was from the forecast for this month which was 69! The drop brought the index to a five-month low.

CPI printed at 0%, Industrial Production rose and so did Capacity Utilization in July… But none of it could get the taste of the U. of Michigan Consumer Confidence out of the markets mouths. It was the Humpty Dumpty economy once again… All the king’s men couldn’t erase the drop of Consumer Confidence.

And, the return of the risk aversion campers swamped the markets. And all day Friday, we saw losses in value of stocks, commodities and currencies. In the overnight markets, the return of risk aversion got even stronger. From what I understand happened, it seems that China’s largest steel makers announced that they were going to se iron ore prices at 35% below the benchmark. This sent shockwaves through the commodities, and that has carried over to further losses in the currencies…

The euro has just fallen through the 1.41 handle, and is taking all the other currencies with it to the woodshed… That is, except of course, Japanese yen. I’ve gone through this so many times in the past, I think you all know exactly what I’m going to say, before I say it… But, for those of you new to class, when the risk aversion crowds fill the markets, investors head for the hills, thus selling their “risk assets” of which currencies are a part of. However, there are two currencies that the mental giants believe to be “safe havens”… One pick is ridiculous, and the other one is even more ridiculous as “safe havens”… But you can’t fight the markets, and they deem Japanese yen and U.S. dollars as “safe havens”… Me? Personally? I deem one to be a currency that should be circling the bowl! And the other? It’s iffy for sure… I don’t think you need me to tell you which one is which!

Of course, the Japanese yen has its moments… And one of those came last night in the form of their 2nd QTR GDP. The Japanese economy grew 3.7% in the 2nd QTR, thus ending their recession… But just like the Australian economy that we talked about last week, and needing to see if it can maintain this growth after the removal of “fiscal candy”, the same is true for Japan. But Hey! 3.7% growth is still pretty impressive, for Japan!

This morning, as I look over the headlines on the Bloomie, I see one story that says the euro will fall to 1.30 VS the dollar, and two other stories that say the opposite, with one saying it will reach 1.45 in the coming days, and the other saying the euro is a “buying opportunity”… Confused? Well, that’s the stuff that markets are made of folks… People with differing opinions…

Which brings me to what I will call “Pfennig etiquette” Just because you have a “different opinion” on things that I say, does not give you the right to flood my email box with what you believe is proof that you are correct! Nor does it give you the right to get nasty with me… It’s this simple folks… If something is on TV that offends you, what do you do? You change the channel… Carry that over to your FREE subscription to the Pfennig…

OK… Enough of that! Later this morning we’ll see German Trade Balance numbers, and… The June TIC Flows data from the U.S. These TIC flows just don’t get the attention I believe they should. So, I carry on despite the mental giants in the markets that place importance on data prints! TIC Flows are simply, the net security purchases by foreigners. The U.S. has to sell its Treasuries to finance the ever expanding deficit… And supposedly, these TIC Flows tell us whether that’s happening or not. But given the games that people (the Fed and Treasury) play these days, who knows what is real or not? Only the shadow knows!

Don’t ask Big Ben Bernanke, he’ll tell you he doesn’t know, like he did when he was asked by a Senator where $500 Billion that left the Fed’s books went… Big Ben said… “I don’t know”… Ahem… Big Ben? IF YOU DON’T KNOW… WHO THE )*&(&*)( SHOULD WE ASK?

OK, that was a tangent I didn’t plan on going to… But I did… So let’s finish the TIC Flows talk, eh Chuck? So… Last month, for instance, the data showed a negative figure, which meant that we did NOT finance our deficit in May! June’s data prints today… Let’s hope it prints better than the May report!

Speaking of the cartel, I mean the Fed Reserve… I saw this quote by Bill Bonner the other day, and just knew it would fit nicely in with any discussion of the cartel, I mean the Fed, and Big Ben Bernanke… Here’s Bill… “And remember, too, the feds don’t really have any money to hand out. They can only get money by taking it from its rightful owners – either in taxation or loans. Or, they can print it up themselves. In any case, the money adds nothing real or extra to the economy. It merely distorts the economy…twists it…misleads it…and makes it a bigger mess than it was already.”

Yes, that’s exactly right, Bill! And something that I’ve tried to tell my dear readers for some time now… A lot of people don’t agree with that… And that’s all fine and dandy with me… But I believe that the things that I’ve researched tells me otherwise… Quite a bit otherwise!

All the good that the Norwegian krone built up last week, has been wiped out by the sell off of Oil prices. And when the Norwegian krone backs off it takes the Swedish version of the crown the krona with it!

The Aussie and kiwi versions of dollars saw their recent lofty levels melt away with the commodities damage from the Chinese steelmakers announcement. These two are still way above their winter of this year’s levels, so, it’s not all bad…

So… These risk aversion outbreaks have been relatively short in recent months, and not like the risk aversion of last fall and winter… So, we can look to see what might shake the risk aversion campers… As I look over the data calendar for this week, I really don’t see anything that “might” scare the risk aversion campers… However, the week is dominated by several reports on Housing & Building… Maybe, just maybe, these reports might show that the Housing market has bottomed, that sales are picking up, and that home prices have stopped falling…. Who knows? Maybe that would be enough to shake up the risk aversion campers!

I was thinking about this while I was typing that previous paragraph… And that is… Even if Home prices show a bottom, how long will it be before they are on the upside of 2 years in the red? Unfortunately, it will be a very long time before that happens! Long Time readers will remember when I used to (what many believed me to be doing, crying wolf), warn about the housing bubble… Shoot, I had people in the mortgage industry that just wouldn’t / couldn’t come to agree with me… Of course when it all melted down eventually, they admitted to me that they had been drinking the kool-aid, but now see what I had been trying to tell them…

So… When I say that I believe it will be a very long time before that happens, I’ve got a track record here…

I also was one of the first people to say in 2001 that the dollar was about to go into a secular long term weak trend… You should have seen the emails I got then! Oh, but look at us now… The dollar index has given up over 40% of its value since then! And some individual currencies were doing even better at one point during the trend…

So, with that note… I’ll head to the Big Finish!

Currencies today 8/17/09: A$ .8175, kiwi .6665, C$ .90, euro 1.4065, sterling 1.63, Swiss .9250, rand 8.20, krone 6.20, SEK 7.32, forint 194.85, zloty 2.98, koruna 18.33, yen 94.50, sing 1.4520, HKD 7.7505, INR 48.96, China 6.8360, pesos 13.03, BRL 1.8475, dollar index 79.50, Oil $65.80, 10-yr 3.47%, Silver $14.18, and Gold… $936

That’s it for today… I hope your Monday is Marvelous!

Chuck Butler

Source: U. of Michigan Spoils the Party…

When combined with iron or nickel, it is used to create corrosion- and wear-resistant, high-strength products. It’s also contained in both lithium and nickel rechargeable batteries.
That means a lot of demand now and into the future. But right now, hardly anybody’s mining it. See, as the economic crisis wormed its way into industries across the globe, demand for cobalt softened. One year ago, cobalt was priced over $50. Today it’s priced at around $16.
Notes can reveal that one tiny company holds the key to the U.S. supply of cobalt. And it just got final clearance to break ground on one of the biggest moneymaking mines the U.S. seen in decades. The supply shortage could launch this penny stock to $10… $12… even $18 by November 20, 2009.

Spot prices are way down for iron ore and nickel (which goes into iron ore production).

China has increased its iron ore imports over the past few weeks. And, as you can see from the chart below, nickel prices began rebounding at the end of last year.

The $586 billion construction stimulus program in China could be behind these recent trends.

But my Chinese sources say there’s a more mundane (and less hopeful) explanation. They say that China is buying more iron ore to take advantage of current low prices and build up inventories.

China’s economic growth is around 6.5-6.6 percent. It was 11-12 percent before it got caught up in the global economic slowdown. China has a long way to go to get economic growth anywhere near normal.

But I still think the first countries to rebound will come from the east and not from the west. It just won’t be soon.

Source: Basic Metals Not Ready for Primetime

This from Money Morning:

If you were counting on gold to boost your returns this year, chances are you’ve been cruelly disappointed. In fact, when it comes to gold-related investments, virtually every category is down, making this one of the worst years in history for gold investors.

So, why is it that the largest of the large futures traders have some of the lowest net short positions in years? And what does this tell us about gold prices in the near future?

I’ll get to that in a minute. But first …

What Went Wrong?

In my analysis, I’ve identified the three missteps most investors made. First, investors did what they’d been told to do. But in their panic, they flocked to gold on the assumption that the yellow metal would perform as advertised. They forgot the “safety first” strategy that we’ve emphasized this year – one that included a safer, more-conservative way of buying gold.

Strike one.

Adding insult to injury, very few investors (Money Morning readers aside) failed to understand that the massive “de-leveraging” process that’s been part and parcel of the global financial crisis would put downward pressure on virtually every asset class at the same time. And that includes gold. As we’ve seen in the last few months, during times of global panic, investors around the world want the safety of U.S. dollars – and a lot of them – even more than they want gold right now.

Strike two.

But, above all else, most investors failed to realize that gold, just like any other asset, produces the best returns when it is attractively priced. So most investors made the classic mistake of piling in on the basis of performance. In other words, they bought in at the top.
Strike three.

What’s Changed?

During times of crisis, investors have been taught to latch onto those asset classes with the highest relative stability – including gold and precious metals. More often than not, investors who have followed these time-proven practices have been handsomely rewarded for doing so.

This time around, however, the parameters have changed, as the increased use of such “derivative” securities as “credit default swaps” has exacerbated the fallout from the global financial crisis, and touched off the aforementioned de-leveraging process. As asset markets have melted down, hedge funds, financial institutions worldwide, and even government-controlled sovereign wealth funds have taken heavy losses, forcing them to deal with unprecedented margin calls and redemption requests. Because this has never before been part of their crisis-management process, institutional investors have engaged in a massive, concerted effort to sell anything that’s at all liquid – including gold.

Making matters worse, the so-called “carry trade” unwound with a vengeance, forcing offshore investors to buy U.S. dollars in order to offset the sell-off of dollar-denominated assets. In contrast to what you’re hearing on the news, this really is not a sign that the dollar is any stronger than other currencies. Instead it signifies that the greenback is still the global currency of choice – much to the chagrin of Russia, Venezuela and others who begrudgingly tie themselves to it.

It also highlights something that most investors forget, or perhaps never knew in the first place. For better or worse, the dollar is the most liquid of the world’s reserve currencies. Part of that’s because many assets – especially oil – are still predominately traded in dollars.

The problem is that the dollar’s healthy appearance may be just that – an appearance that covers up an inner ill health. These still-hidden maladies have been worsened by the recent machinations of “Bailout Ben” – U.S. Federal Reserve Chairman Ben S. Bernanke – and U.S. Treasury Secretary Henry M. “Hank” Paulson Jr., whose fix-it programs have created a financial Frankenstein that will chase American taxpayers for years.

When the dollar was rallying back in May, and many experts were lauding the move as a turnaround in the making for the long-languishing U.S. currency, we warned investors not to be taken in by the market’s head fake. There were just too many underlying problems for the dollar’s rally to be sustainable. Ultimately, that rally sputtered, and the dollar reversed course and continued its decline.

This time, we again suspect that the dollar is rising too far too fast and that the spike we’ve seen in recent months may be nothing more than a flameout in the making.

However, given the relationship between the greenback and the yellow metal, this leads us to believe that gold could move higher next year if investors lose faith that the dollar merits their nearly exclusive attention right now.

Two pieces of closely related information appear to support this theory:

First, even though gold prices have tanked – a reality that under ordinary circumstances would mean more supply is available – dealers of gold bullion have experienced widespread physical shortages during the third quarter, according to the World Gold Council, a top trade association for the gold-mining industry. That, in turn, led dealers to both charge more and pay more than the spot price would indicate. Particularly strong demand was noted in China, India and the Middle East.

According to a Nov. 19 press release, the World Gold Council also noted that identifiable investment demand for gold in the third quarter was up $10.7 billion to 382 tons – double the levels of a year ago. At the same time, retail investment demand rose 121% to 232 tons, with especially for gold bars and gold coins reported in the Swiss, German and U.S. markets.

At the same time, the SPDR Gold Trust (NYSE:GLD) – the largest exchange-traded fund (ETF) that invests in the yellow metal – noted that it now holds 755.06 tons of gold in trust, up 6.12 tons from the prior week. This is significant because authorized market participants like GLD have to add metal and increase their trading float when buying pressure is higher than selling pressure. This suggests that gold may be reaching the end of its downside run and that it may behave more like investors expect it to in the months ahead.

Second, we find it especially interesting that the largest of the commercial futures traders now hold the smallest net short positions they have held in several years. According to the U.S. Commodities Futures Trading Commission (CFTC), large commercial traders combined net short positions reflect only 71,116 contracts net short, one of the lowest net short positions the CFTC has reported since January 2006.

Historically, low net short positions have proven to be bullish influences. And net short levels of less than 30% total open interest have proven to be especially bullish.

The wild card here, of course, is that the markets are working through a de-leveraging process that’s far from over, meaning that normal supply and demand relationships are out of whack. Longer-term, however, everything we know about those relationships still appears to be intact.

That’s why we suggest that investors make gold a part of their investment program – if for no other reason than we are approaching levels typically associated with higher, rather than lower, returns.

But we can’t just pile in.

Short-term market conditions will transform anything other than a measured approach into a hazardous foray.

That’s why, when it comes to gold, we’ve repeatedly recited the market mantra: “Gold works over time, but not all the time.”

Source: Don’t Give Up on Gold

This from Investment U:

Consider that your computer could contain up to 38 separate chemical elements and that all of those elements needed to be mined and refined. Everything from cell phones to housing supplies requires massive amounts of raw materials.

Our modern lifestyle encourages us to buy the latest products, all made with increasing amounts of technology – and more raw materials.

But industrialized nations aren’t the only players clamoring for these commodities. Developing nations around the world are pounding the table for more of everything. They want what the industrialized west has had for years. And they want it now.

And that’s just the problem. There isn’t enough of it being produced fast enough to satisfy everyone. An imbalance exists between producers, supplies and the market. It means that there will be an inevitable correction.

Prices will skyrocket for base metals and commodities. And for investors aware of this “supercycle,” the rewards and returns could be immense. Here’s what you need to know about the international demand for commodities – and how you can profit from their price explosion.

Supplies Are Low – And Demand Remains High

The whole idea of a supercycle, of higher commodity prices, remains well intact. Even with the recent slowdown, a massive supply/demand imbalance exists in the marketplace right now.

And nothing has emerged to change that story.

“It is a mistake to assume that current volatility within the commodities sector is proof that the prolonged rally in commodity stocks is running out of steam,” says Ian Henderson, manager of the JPM Natural Resources Fund.

“It is also misrepresentative to attribute it to a change in the basic fundamentals of supply and demand… In reality, it is the self-perpetuating irrational market sentiment in itself which is causing a sell off…”

In the short term, however, we’ll likely continue seeing a softening of commodity demand, along with a decline in prices. But that’s okay because stock prices already reflect the new paradigm in which mining companies are operating.

Mining companies sit at extraordinary valuation levels right now. So buying now ensures that you’re grabbing shares at rock-bottom prices.

But in order to make the most of the opportunity, you need to look above the forty-ninth parallel, to Canada – the world’s investment hotspot for profits from the bull market in metals.

Simply put, Canada is the preeminent leader of the world’s mining sector. According to Paul Stothart, Vice President of Economic Affairs at the Mining Association of Canada,

“About 19% of the total global spending on mining exploration was for exploration within Canada’s borders, well ahead of Australia at 13% and the U.S. at 8%…”

Consequently, Canada’s mining industry will be crucial to satisfying the world’s needs because of its experience and technological capacity. And Canada’s mining-friendly laws only add to the country’s investment appeal – a far cry from other resource-rich countries where regulators are downright hostile. But it’s not just the producing nation that we need to worry about.

Fact is, the United States, Europe and Japan are no longer the only countries vying for the world’s resources. Other countries with young, blossoming economies are now demanding an increasingly larger piece of the pie.

The BRICs (a conceptual coalition of emerging superpowers, which includes Brazil, Russia, India and China) encompass over 40% of the world’s population and hold a combined GDP of $12 trillion dollars, which makes it the largest entity on the global stage on almost every scale.

These countries are in the midst of an unparalleled building boom that is consuming resources like never seen before.

In China right now, a city the size of Philadelphia is springing up every 30 days. (It is estimated that China will need enough structural steel to build a Manhattan’s worth of new buildings every year for the next two decades.) And within another 20 years, China’s economic output is likely to be greater than Japan’s, greater than Germany’s, greater, even, than the United States’.

In short, these countries are going to be fueling international growth for years to come. They’re hungry for the new resources needed to continue their astronomical growth.

Solid Growth at a Deep Discount

Now that you see the potential, there are plenty of ways to profit from this commodities boom. You could trade futures… stockpile gold coins… even buy a copper mine. Unfortunately, none of these approaches – for obvious reasons – are very practical. They don’t make sense for the majority of investors.

But that doesn’t mean that we can’t profit like the titans of Wall Street. The recent turmoil in credit markets – and corresponding volatility in the stock market — has handed us an extraordinary profit opportunity for a number of companies

So we’re advocating a more direct approach to mineral profits. With such a pure supply-and-demand opportunity, a more pure play on precious metal prices is warranted for the largest gains. Accordingly, we’re going straight to the source and recommending buying shares of the mining companies themselves.

Lundin Mining Corp. (NYSE:LMC) is a Canadian mining company with facilities located around the world, which is run by its namesake, the Lundin family. They are easily the most important family in mineral and energy exploration finance around the world.

They amassed a fortune in commodities – valued in excess of $4 billion – when oil cost about $20 a barrel and gold traded for $300 an ounce. By having an innate ability to spot value. In fact, just about everything this family associates with ends up being a massive commercial success.

The Lundin family’s flagship mining operation is trading in the $1 to $2 range, which is about 70% off of its October 2007 high, thanks to the recent commodity cool-off. That means that investors who buy now will get this incredible mining operation for less than half of its book value. Even better, our analysts say that the book value should be much higher than it is, which makes the case for investment here even stronger.

Furthermore, LMC has no debt, which gives it an incredible edge over most other industry players. It can fund its growth entirely on the cash it generates from operations – and not have to rely on the credit markets.

Fact is, the credit crunch is far reaching. And tighter lending practices have meant fewer loans to risky mining ventures. That leaves most miners in a pinch – but not LMC.

Lundin Mining is a phenomenal play on base metals, specifically copper, nickel, lead and zinc. Its operation includes six mines around the world, including five key mines in Portugal, Spain, Sweden and Ireland. Here are some highlights of these massive and highly productive mines:

• Zinkgruvan, Sweden: The primary metal produced is zinc, with lead and silver as byproducts. Costs have been reduced by 22% over the last year and new copper production is scheduled to begin in 2010.
• Neves-Corvo, Portugal: It’s an underground copper and zinc mine. Last quarter’s sales surged 52% over the same quarter a year ago. And it just approved a new program to profitably process mine tailings, which should substantially improve margins. (Mine tailings are the materials left over after processing the ore.)
• Aguablanca, Spain: This nickel and copper mine recently bumped operating efficiency up 46%.
• Galmoy, Ireland: About 100 miles from Dublin, the lead and zinc mine benefits from having a sound infrastructure already in place.
• Aljustrel, Portugal: The lucrative zinc mine is still ramping up capacity, which gives us an opportunity to get in on the ground floor.

What’s more, Lundin Mining has a few up-and-coming operations in the pipeline that are showing incredible promise, too.

One is the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo. It’s being touted as the largest and richest known copper/cobalt discovery in the world, covering almost 600 square miles of the Katanga Province. This blockbuster mine has an expected life of 40 years. And is projected to be in the lowest quartile of operating costs for copper producers.

The reasons for owning Lundin are numerous, but in spite of its enviable (and growing) inventory of proven reserves, shares can be had for a steep discount. The company is valued at $2 billion, which is only 0.63 times its book value. Even better, the forward price-to-earnings ratio is a measly 5.73, despite the company’s mines having a growth rate around 30% to 35% a year.

The market’s been noticing Lundin’s value as well. In recent days, a takeover bid has emerged that could drive share prices higher if it’s approved. However, in light of the number of merger agreements that have gone unfulfilled, there may not be a takeover.

Regardless, of whether it happens or not. These developments should serve to remind you that while the market may not see the value in Lundin, it’s competitors do. And so do we.

Source: Unearth Big Gains from the Commodity “Supercycle”

This from Taipan Daily’s Emerging Markets blog:

Right now, copper spot prices are an anemic $1.65 per pound. That’s an amazing drop from above $4 back in June.

And yet, one Chilean copper mine is actually expanding.

The mine is called Dona Ines de Collahuasi. It’s Chile’s third largest copper mine and is located in an historical copper mining area. Back in 1880, a large, high-grade copper and silver vein was found. It’s one of the world’s largest copper resources.

Right now, the mine produces roughly 440,000 tons of copper a year.

But the mine has just approved a $64 million project that will increase annual output by 30,000 tons. And that’s just the first expansion.

At the end of the first quarter of 2009, a $750 million expansion plan will boost production to 650,000 tons a year. After that expansion is complete, the mine intends to increase production to a full one million tons of copper a year by 2014.

That’s an astounding move.

And one that will need some major financial backers, particularly if copper prices don’t recover. It’s a good thing some big companies own this mine.

I’m talking about Anglo American (Nasdaq:AAUK) and Xstrata (LON:XTA), each with a 44% stake. There’s also a Japan’s Mitsui (Nasdaq:MITSY), owning 12%.

The CEO of the mine, Jon Evans, told the newspaper Diario Financiero, “The mid and long-term plans are the same, therefore our expansion plans are also the same.” Which may pay off in the long run… If it can survive depressed copper prices.

And copper prices have continued to fall, despite a huge cash injection by China to its economy. China is the largest user of many of the industrial metals, like iron ore, aluminum, zinc, and, of course, copper.

So with China’s economy slowing (albeit to 7.5%), the country will use less of those materials.

Now, China’s been part of the reason why copper prices had more than doubled since 2002. If Chinese demand continues to slow, that could mean a long time before we see copper prices begining to climb again.

Which would mean that Anglo American, Xstrata and Mitsui will have to wait for the returns on these major expansion.

But it would also mean that they’d be ahead of the game once things begin to turn around… If they can afford it.

Source:Copper: Chilean Investment Still Expanding

The value of announced mining takeovers more than tripled to $199 billion in the first five months of 2008 from a year ago – the first time mining mergers have topped Bloomberg’s mergers and acquisitions table since it began 1998.

Meanwhile, gold prices are set to reach record levels, says Mike Caggeso in Money Morning.

Those new catalysts are:

• Inflation.
• Oil prices.
• Fatter wallets in emerging markets.

Inflation and Gold

Global inflation will be a key – if not the key – factor because of gold’s established reputation as an inflation hedge.

Since September, the U.S. Federal Reserve has lowered interest rates seven times – chiefly because of a subprime-mortgage mess that grew into a global financial crisis.

Many foreign central banks have either reduced interest rates in kind, or opted to stand pat, even though inflationary forces in their own markets actually dictated that a rate increase might be a wiser move.

Low worldwide interest rates – arguably an artificial situation, of sorts – has stoked global inflation and caused the greenback to plunge to record lows against other major currencies. And the weak greenback has been a key catalyst behind the escalation of oil prices.

As Money Morning’s Hutchinson has predicted, however, the Fed and other central banks will eventually be forced to start pushing interest rates higher – a stance that even Fed governors are starting to support.

“And during that period, expect speculative demand for gold to intensify and its price to increase steeply,” Hutchinson said. “The longer the period before the Fed is forced to increase interest rates, the higher gold will go.”

“Black Gold” and Gold

There is a very tight correlation between rising oil prices and rising gold prices. While the torrid oil-price advance may moderate at some point – no market goes straight up or down without interruption – the trend in the crude-oil market clearly is toward higher prices, MoneyWeek reported.

And high oil prices tend to support gold prices.

Referring to the “magic relationship” between oil and gold, Moaz Barakat, the managing director of the World Gold Council, said the fluctuations were natural and in accordance with historic price adjustments.

“If you look at the past 100 years, the gold price was always 10 or 12 times that of oil prices,” Barakat told MoneyWeek. “With oil basically around $100 a barrel, gold prices should be at $1,000 or $1,200. That’s the magic relationship between the two.”

[Editor’s Note: Gold investors have made a killing in the past few years, and gold’s meteoric rise is hardly over. Money Morning contributing editor Martin Hutchinson has predicted the precious metal could climb as high as $1,500 in the near future. For additional profit plays on gold - as well as oil, the U.S. dollar, sovereign wealth funds, emerging markets, agriculture, uranium, biotech and much more - check out Money Morning’s just-published global investing guide, The Essential Investors Playbook. It’s Money Morning’s first foray into the investment-book market, but we’re certain you’ll find it worthwhile.]

Asian Wealth

Naturally, as per capita wealth increases in such emerging markets as China, India and Latin America, demand for “American” goods will soar. That holds true both for American “brands,” as well as for so-called “lifestyle goods” – products that foreign consumers identify as being part and parcel of the “American” way of life. Jewelry, gold, gems, other precious metals all will benefit from the growing ability of the newly forming middle classes to spend on wares that aren’t just necessities.

That’s different from past bull markets for gold, which were solely inflation-driven; that is, investors who were seeking to hedge their bets against rising prices caused gold prices to skyrocket.

To be sure, inflation has been a big factor this time around. Gold prices usually move in the opposite direction of the U.S. dollar. With the dollar weak, and interest rates low, an up-tick in inflation could send gold prices higher.

But for gold prices to really zoom, consumer demand will have to act as an adjunct to inflation. And rising demand from increasingly wealthy consumers in China and India may be just the ticket.

Now that the Internet and satellite TV have allowed these aspiring consumers to see what kinds of wares U.S. consumers regularly have, this new group of Asian consumers also want their own houses, cars, appliances, cell phones, computers and jewelry. They are willing to work to get it. And they are all-too-happy to pay the rising asking price.

The upshot: The wealthier this new group of consumers becomes, the more they’ll envy these goods – and the higher the price tags on those products will climb.

This new source of demand could potentially blunt gold’s run toward $1,500. Naturally, demand drives up prices. And, recently, steep prices are to blame for the 11% decline in gold sales during the Hindu holiday of Akshaya Tritiya, where long-term investments such as gold, silver and real estate are religiously merited as purveyors of prosperity.

Like Christmas, Hindus are constantly reminded of Akshaya Tritiya by a bevy of special sales and advertisements from jewelers and real estate companies.

This is important to note because Hindus were curbing the religious tradition of buying gold, which sheds light on “how much is too much?”

Read on here for Mike’s maximum profit plays on gold.

“My ongoing confusion about the current state of our markets tells me one simple thing,” says Merryn Somerset Webb, “that I should hang on to my gold.”

The price of gold has already fallen 14 per cent since its peak of $1,033 back in March, and it also had a bad week as the dollar rose.

But, in uncertain environments, what we all need most is insurance. And gold is the best financial insurance you can get over the long term.

There is a perfectly reasonable fundamental case to be made for holding gold: supply is limited and demand high. However, the real point is that the future is very uncertain and not in a good way.

We could see an inflationary recession. We could see a deflationary recession. But what I think we can be pretty sure we won’t see, over the next few years, is stable growth with stable prices.

Tim Price of PFG Wealth puts the case nicely. “There are few things you can count on in a full-blown economic and financial crisis,” he says.

“Not central banks, politicians or Wall Street banks, and not paper currencies – the dollar lost 98 per cent of its purchasing power during the 20th century.”

“But several thousand years of world history point to an alternative store of value, in the form of this iconic, shiny yellow metal, whose very scarcity is its abiding strength.”

You can get exposure to said iconic metal by buying the ETFS Physical Gold ETF (PHAU).

“I see that Dennis Gartman is talking about gold again,” says Ed Steer in Casey Research.

Here are a few words from his early Thursday morning commentary….”If the governments of the world are now as concerned about inflation as we think they may be, and if they are even more concerned about the prospects for a generic, rising inflationary psychology amongst the public at large, then perhaps a collusive sale of gold to push it down through $865 would be possible…that is, if the (Gold) ‘Bugs’ great fear of collusion amongst the central banks is indeed a reality, and we truly have our doubts.”

Well, Dennis…gold did fall some more on Thursday, but that’s not the end of the world…nor has it been a surprise to the readers of my daily rant. As I’ve always said, the ultimate goal (if the bullion banks could achieve it) would be to take out the 200-day moving averages. They came within an eyelash in both gold and silver on Thursday. The 200-day m.a. has withstood every challenge going back for the last ten years. And when it has been broken, it’s wasn’t for long…and not by a lot. Dennis…if you want some investment advice…I’d seriously think about putting on a long position or two in the next month or so, and letting it ride…as we’re awfully close to the bottom. You can thank me later.

Looking back to Thursday, “the precious metals had a strong day, as well they should have, given soaring oil prices and a declining dollar,” says Doug Casey in Casey Research.

Traders may have even been a little disappointed that the metals’ performance wasn’t a bit better than it was

After acknowledging the buck’s influence on the day’s action, the Hightower Report went on the say that “with a sharp upward explosion in energy prices and a host of physical commodities, it is just as likely that classic inflationary buying was being seen in the gold trade. With the US equity market at times under significant selling pressure as a result of the sharp price gains being registered in the commodity markets, it is also likely that classic flight to quality buying was taking place. While the Dollar Index was weak some traders suggested that without a decline below the Tuesday low of 73.31, the currency influence on gold prices might not intensify. In the end seeing crude oil prices virtually explode during the session Wednesday probably rekindled investment interest for gold from a broad range of angles.”

Looking down the road, wrote James Moore, an analyst at TheBullionDesk.com, “short-term direction is still likely to be dollar-driven.”

But Moore added that “with inflation on the increase, longer-term investors should continue to look favorably towards gold, with the metal likely to carry out further base building ahead of $850 before rallying back towards $1,000 later in the year.”

Crude oil, which remains at nosebleed levels, is a primary driver of inflation, and after oil’s meteoric rise, gold has a lot of catch-up still to play.

And Matt Zeman, a metals trader at LaSalle Futures Group in Chicago believes that the difference between interest rates on euros and dollars is paramount, leading him to conclude that, “Traders are looking at the difference between rates. You’ve got to believe that people are going to step in and buy gold right now.”

From there, both metals rose in fits and starts all through London, but then began to tack on some gains once the Comex opened for business. However, the rise in prices did not go unopposed. You can see from looking at the Kitco gold chart; that once in London trading…and three times in New York trading…gold got sold off slightly when it showed any signs of “irrational exuberance” to the upside. Silver was the same.

Although I’m delighted with Friday’s action, I’m actually a bit underwhelmed by it. Firstly, in forty-eight hours, oil tacked on about $16…and the dollar was down 1.4 cents. These are monster moves…both of them…and very gold friendly. Despite that, gold did nothing on Thursday. All the gains came on Friday…such as they were. Remember that oil was about $110 and the US$ was a hair under 70 cents when gold was at its peak of $1,040 or so. We barely cracked $900 in gold on Friday…and silver is still down about 25% from its high in mid-March. So you can see why I’m not jumping up and down. But regardless of the monster sell-off in the equity markets, the HUI put in a pretty good performance.

Despite the run-up in price yesterday, there was just decent Comex volume on Friday, not huge volume. As far as Thursday’s open interest numbers go, gold o.i. rose 1,543 contracts, and silver added another 882 contracts. Volume was obviously thin on Thursday as well.

We are, once again, well through both the 20- and 50-day moving averages for silver. Gold closed on its 50-day m.a. yesterday and is about $5 above its 20-day m.a. As I mentioned, volume has not been extremely heavy in either metal for the last couple of days. That could change quickly once the tech funds show up on the long side.

As far as the Commitment of Traders goes, the “8 or less” traders (bullion banks) covered some of their shorts in both metals while the tech funds pitched their respective long positions. There wasn’t as much of a clean-out as either Ted Butler or myself were expecting. We were expecting at least double what was actually reported…but maybe this is the best the bullion banks could do! Despite the clean-out, the concentrated short position in gold hit another new high record amount. The boyz are now short 84% of the entire Comex gold market. In silver it’s 79%. Yet the CFTC and your mining companies do nothing.

And lastly, I see that Dennis Gartman got totally blown out of his gold short positions. Al Korelin, from the Korelin Economics Report, interviewed me about this…and ‘all of the above’…in our Friday commentary which is linked here.

I have three stories today, so I’m glad it’s the weekend, as I hope you can find the time to read them…if they suit your fancy. The first one is from The Wall Street Journal of all places. This is the second gold story that has come from a senior ‘fellow’ of the Council on Foreign Relations in the last sixty days. Does it mean anything? Who knows. You can decide. The article is entitled “Contracts as Good as Gold” and is linked here.

Then a day after the above story showed up, this next story appeared in the Asia Times out of Hong Kong. The co-authors of this piece look and sound like they’re reasonably well connected too. Any relation to these two articles? Don’t know that either…however, gold is front and centre in both. It’s worth reading, and is entitled “Time overdue for a world currency” and is linked here.

And lastly comes the following Reuters story filed from Jerusalem. I would suspect that the contents of this story had something to do with what happened in the gold, oil, currency and stock markets on Friday. The article is entitled “Israel to attack Iran unless enrichment stops–minister”. The link is here.

You can fool some of the people all of the time, and those are the ones you want to concentrate on. – George W. Bush, Washington, D.C. – March 31, 2001

Today’s video will take you back about 40 years. My God…where has the time gone??? Turn up the volume on your speakers and enjoy! The link is here.

I noted in a Bloomberg story that US household wealth fell the most in five years….$1.7 trillion worth in Q1/08. Real estate-related assets dropped by $329 billion, the most since 1952. And even though the Dow was down 411 points (and falling) just before the close, the ‘Catch a Falling Knife” brigade made sure that it didn’t close on its low. Is everything still fine? Monday’s trading should be educational.

Enjoy the rest of your weekend, and I’ll see you bright and early Tuesday morning.

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…Saturday, June 7th, 2008