Monday, February 14, 2011

Philip Williams: Uranium to Cross $100 Threshold in 2011

The Energy Report: In January, Macquarie Research said it expects the uranium spot price to reach $75/lb. in the first half of 2011 with the main driver being China's growing energy demands. Where does Pinetree Capital Ltd. (TSX:PNP) see uranium trading at in 2011 relative to Macquarie's forecast?

Philip Williams: We continue to be very bullish on the price of uranium. It's had a very good run of late and we see that continuing for many of the same reasons that Macquarie does. I think for the early part of the year $75 is a good number, but it could surpass that substantially by year-end. By then, we think that the price will be at the $100 level and maybe even higher. We've got China doing quite a lot of stockpiling, especially on the spot market. We see the producers as being overcommitted right now. We also think that financial-speculator activity will come back to the market. All those events will culminate in a much higher price.

TER: The last time we saw a similar price spike in uranium was in 2007, when prices for yellowcake rose above $130 per pound. After that, prices dropped off dramatically. If these financial speculators are just looking for short-term money and getting out again, could we see a similar price drop?

PW: I think there are two things to think about. In 2006–2007, the uranium price was driven up mostly by financial speculators and I think they're coming back into the market. When the run-up in the price was on, in some cases, a very small amount of uranium actually changed hands. With China's recent uranium stockpiling, we've seen quite a lot of material go through the market at these prices. I think we'll probably get a spike similar to the last one and it could be even higher, and then it will pull back. But I think we're going to have a much higher base price this time than we did last time. After 2007, the price came back to about $40. I think it's going to be substantially higher; it could be a price that falls back into the $80–$100 range. (more)

Wheat’s Rally to Fuel Gains in Rice, Zeigler Predicts

The price of rice, the staple food for half the world, may advance as wheat’s rally drives consumers to seek alternatives, according to Robert Zeigler, director general of the International Rice Research Institute.

“Rice typically tracks wheat increases,” Zeigler said in an interview on Bloomberg Television today. “Wheat prices started to spike in last July, and rice prices followed them up,” Zeigler said, describing it as a “follow-on effect.”

Wheat climbed to the highest level in more than two years this week on concern drought in China may curb output, boosting competition for dwindling global supplies. The world’s neediest people are most affected by food costs, which reached a record last month, World Bank President Robert Zoellick said yesterday.

“We’re dealing with staple foods here and a price rise in one should lead to some degree of substitution towards another,” Michael Creed, an agribusiness economist at National Australia Bank Ltd. in Melbourne, said today. “There’s good reason to be bullish about rice prices.” (more)

Major Currency Trends For Major Gain – YEN and Dollar

Over the past few years Forex traders have really had to step up their game in order to continue making money in the currency market. Back in the day before currency trading was main stream, currencies used to trend in a direction for a long period of time with a low level of volatility. But with so many individuals now involved speculating on price action coupled with international concerns in most countries, the once slow and steady currency market now moves like the stock market with large price swings on a weekly and even daily basis.

With currency trading growing at an incredibly fast rate, stock traders have been giving tools to trade currencies using ETFs. If you are familiar with leveraged ETFS then you have most likely seen the huge opportunities (100,200 even 400% gains) which they can provide during major trends. Below are a couple major trends that both Forex and ETF traders should be keeping their eye on.

Japanese Yen – 30 year Monthly Chart
Over the last couple years China has taken most of Japan’s manufacturing, creating some terrible fundamentals overall for the Yen. With a weakening economy and the Yen making a major top in 1995, I feel we could be seeing a 16 year double top forming. This means shorting the Yen for a multiyear correction (bear market). This could generate some serious gains in the coming 2-5 years with very little work.

YCS 200% Short Yen Exchange Traded Fund – Daily Chart Setup
This fund allows stock/ETF traders to play the currency market within a regular trading account. The YCS fund is a 200% leveraged inverse fund, meaning this fund goes up in value as the Yen declines. For example, if the Yen drops 10% in value YCS will rise 20%.
Everyone has seen that infomercial to cook food with the saying “Set-It-And-Forget-It!” Well that’s more or less what this position will be like if we get a setup to buy this fund. This trade could easily last 5+ years with the potential to generate 150% – 400% gain.

US Dollar Weekly Chart Setup
Taking a look at the more common currency “The Dollar”. It has been forming a similar price pattern and is trying to form a base and bottom. The dollar does have one major issue which will most likely cause a breakdown thus an even lower value in the coming year. The problem is that the fed reserve constantly prints money increasing the money supply and devaluing the dollar (quantitative easing).

Currently, the dollar is trading within a large range and is poised for a short term bounce. There will not be any major trends until a breakout of this trading range to either the up or down side.

Major Currency Trends for Major Gains
In short, while playing shorter term trends is exciting and rewarding and keeps us busy on a daily/weekly basis, it is nice to have some long term positions at work which slowly mature into large percentage gains which boost you’re overall portfolio value each year with little work. Both the Yen and Dollar look like there is big potential just around the corner using the buy and hold mentality.

Each year I find 3-5 major opportunities where I can put some money to work, not tie up much capital and if they move 150% or more in my favor then those small investments boost my overall yearly portfolio gains substantially.

I do have another major trend setup forming which I’m calling the “Holy Cow” setup… which could be a real money maker this year. The exciting thing about it is that I have not seen ANYONE talk about this investment in years…

Chris Vermeulen

Russian Debt May Reach 585% of GDP on Demographic Woes

Russia’s debt may surge to 585 percent of gross domestic product by 2050 as the population declines and the government ramps up spending, pushing the credit rating below investment grade, Standard & Poor’s said.

The population will probably shrink to 116 million by 2050 from 140 million last year, forcing the government’s age-related expenditures to rise to 25.5 percent of GDP from 13 percent in 2010 in the rating agency’s “base-case scenario,” S&P credit analysts led by Frank Gill in London said in a research note e- mailed today and dated Feb. 8.

The demographic decline will lead to “prolonged fiscal imbalances,” putting Russia’s credit rating under “rising pressure” after 2015, according to S&P. Russian government debt is rated BBB at Standard & Poor’s, two notches above junk. The country’s state debt made up 9.5 percent of GDP, Finance Minister Alexei Kudrin said on Feb. 2.

“Russia’s aging population will likely place substantial pressure on economic growth performance and public finances,” the analysts wrote. “By 2035, we expect that Russia’s fiscal indicators will have weakened such that they would be more in line with sovereigns currently rated in the speculative-grade category, because, in our view, the projected improvement in GDP per capita would not be able to offset the potential fiscal deterioration.” (more)

Technically Precious with Merv

For week ending 11 February 2011
The upheaval in the Middle East has done nothing for gold. It looks like gold is ready for more
downside action. A move to $1305 would not be good. The “Penny Arcade Index” is still okay
so any downside activity shouldn’t last for too long.
First, the P&F chart. As mentioned previously, it had given me a bear signal but there was still
a support at the $1320 mark to be overcome before really going bearish. This requires, on the
P&F chart, a move to the $1305 level, which the price has not yet met. So, we are in limbo for
now. A move to the $1305 level would also cross below the long term moving average line
and turn the line downward further confirming the bear, at that time. So, we wait.
Looking at the usual indicators, the price of gold remains above the long term moving average
line. The line itself is still in an upward slope but is turning towards the horizontal ready to turn
down on the slightest provocation. The long term momentum indicator continues in its positive
zone and is once more above its now positive trigger line. However, weakness is shown in
that it just can’t seem to get any significant upward trend going. The volume indicator seems
to have topped out and is in a basic lateral drift. It continues to move above and below its
trigger line in the process. It is below the trigger on Friday however, the trigger is still very,
very slightly in a positive slope. All in all the long term rating still remains BULLISH.
On the intermediate term we have a somewhat less favorable story. Gold continues to track
below its negative sloping moving average line. The intermediate term momentum indicator
has now moved above its neutral line into the positive zone and above a positive trigger line.
As for the volume indicator, it continues to be basically below its trigger line and the trigger
remains in a negative slope. On the intermediate term the rating is only at the – NEUTRAL
level, one step above a full bear. The short term moving average line, although moving
upwards, is still below the intermediate term line for a negative reading and confirmation of the
negative rating.
Although it looks like we are in a short up trend it also looks like a topping activity getting ready
for some more down side action. A drop below $1350 would put us into such a negative
phase. For now gold price remains above its short term moving average line and the line
slope remains upward. The momentum indicator is just very slightly above its neutral line and
above its positive trigger line but that could change with another negative day of activity. The
daily volume action is still pretty low and below its average volume over the past 15 days. For
now the rating remains BULLISH with the very short term moving average line confirming. (more)

M2 Grows By $40 Billion In One Week, Hits Fresh All Time High

Just in case someone was confused about the relationship between liquidity, currency devaluation and nominal (not real) asset prices, the St. Louis Fed was kind enough to email us their weekly M2 level. And after last week's surprising drop, M2 once again rose, this time by a whopping $40 billion. Oh and before someone says that M3 is still declining, it isn't. Or rather the much more important monetary aggregate, that including all shadow banking liabilities is now increasing as we indicated during the last Z.1 spread. In one month, when the next Flow of Funds report is released we are confident we will confirm that in Q4 shadow banking increased by at least half a few hundred billion on an annualized basis. In other words the central bank reliquification is now on in full force, both in America and in every other place that has central banks. Which also explains why central banking hawks are now virtually extinct (cf: Axel Weber).

Why is the Gold ETF (NYSE: GLD) Dumping Gold?‏

There’s something going on behind the scenes at the world’s largest gold ETF, the SPDR Gold Trust (NYSE: GLD).

Over the past seven months, there’s been a massive outflow of gold from GLD’s holdings.

Approximately 3.2 million ounces, or 100 metric tons of gold have been redeemed.

If you’re the average investor, you don’t have the option to redeem shares of GLD for gold. But if you read the fund’s prospectus, you’ll see that you can redeem GLD shares for gold in lots of 100,000 shares.

At current prices that’s over $13 million.

And you might be thinking that it’s bearish for gold prices if the world’s largest gold ETF is being drained of its gold holdings in $13 million increments.

But I think you can make a far stronger case for such an event to be bullish for gold.

After all, GLD is basically the world’s largest off-market publicly traded pile of gold. If people were bearish on gold (and GLD), they would sell their shares of GLD, not redeem them for the physical metal.

In effect, GLD’s gold holdings are a kind of off-market clearinghouse for extremely rich people, banks, and other wealthy institutions. Where else would you be able to buy $13 million lots of gold without creating waves in the marketplace?

The gold leaving GLD’s vaults doesn’t need to be replaced, because it’s being traded for the paper shares. The shares and the gold cancel each other out.

It’s only when GLD has to go into the market to buy gold to back new share issuances that it would potentially create waves in the market.

So why is a mainstream media source like Reuters reporting this story as bearish for gold?

I don’t know. They’re getting it wrong, is the simplest explanation.

But the important thing to remember is that it’s not GLD dumping gold, but rather, a GLD shareholder cashing in their shares for physical gold.

GLD realistically can’t dump gold on anyone, unless they’re redeeming their shares.

Keep a close eye on GLD, and the number of outstanding shares. The more this fund gets drained by the world’s richest gold investors, the more this story will be in the news.

I’d look for any major depletion of GLD as extremely bullish for gold, and it could be a great way to average into your physical gold position using these drawdown events as times to buy.

Kevin McElroy
Resource Prospector

Turk - Silver Backwardation for Years, Possible Hyperinflation

King World News has received word from James Turk that silver is in extreme backwardation. Turk stated, “There is a huge story that is brewing. Silver is in backwardation to 2015, which is 13-cents cheaper than spot. This is unbelievable. Money does not go into backwardation except ‘in extremis’!”

Turk continues:

“If this situation continues, and there is no reason to suspect that it is about to end quietly because the demand for physical silver is not abating, there are only two alternatives:

One, as we discussed on Friday, the silver price has to rise in order to dislodge physical metal from the strong hands that now own it. But why would anyone accept some national currency in exchange for physical silver unless the price is much, much higher?

Two, the shorts declare force majeure and use government force to let them escape from their untenable position. The fall-out from this outcome is very complex because there are so many factors to consider. But I would expect that any default would only strengthen the resolve of the strong hands now owning physical metal. Meaning that the market for physical silver would become even more tight than it is now, even if the price shoots higher as I expect.”

Turk also went on to make the following points:

“Look for a short squeeze in silver already underway as evidenced by the backwardation to intensify as we move toward silver option expiry at the end of this month, and silver delivery on March futures contracts in early March. In a short squeeze, what matters is ownership, not price. When you own physical metal, you are protected from government sanctioned force majeure that bails out the shorts.

As I mentioned Friday, the paper market for silver is losing its significance in the process of price discovery. Everyone who owns physical silver should make their decisions based on what is happening in the physical market, not the paper market.

A basic premise of precious metals is that silver leads gold, which is a point we have discussed before. It will be interesting to see whether the backwardation in silver will lead to a backwardation of gold. If it does, the end game for the US dollar is near. It would mean hyperinflation of the dollar is upon us.”

Turk brings up a key point here about keeping an eye on the physical market in both metals. Paper gyrations aside, in the end the physical market will have the last word.

Eric King

US Economic Calendar for the Week

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Feb 158:30 AMRetail SalesJan-0.7%0.5%0.6%-
Feb 158:30 AMRetail Sales ex-autoJan-0.7%0.6%0.5%-
Feb 158:30 AMEmpire ManufacturingFeb-
Feb 158:30 AMExport Prices ex-ag.Jan-NANA0.6%-
Feb 158:30 AMImport Prices ex-oilJan-NANA0.3%-
Feb 159:00 AMNet Long-Term TIC FlowsDec-NANA$85.1B-
Feb 1510:00 AMBusiness InventoriesDec-0.7%0.7%0.2%-
Feb 1510:00 AMNAHB Housing Market IndexFeb-161616-
Feb 167:00 AMMBA Mortgage Purchase Index02/11-NANA-5.5%-
Feb 168:30 AMHousing StartsJan-555K540K529K-
Feb 168:30 AMBuilding PermitsJan-550K580K635K-
Feb 168:30 AMPPIJan-0.7%0.7%1.1%-
Feb 168:30 AMCore PPIJan-0.3%0.2%0.2%-
Feb 169:15 AMIndustrial ProductionJan-0.6%0.6%0.8%-
Feb 169:15 AMCapacity UtilizationJan-76.2%76.4%76.0%-
Feb 1610:30 AMCrude Inventories02/12-NANA1.9M-
Feb 162:00 PMFed Minutes------
Feb 178:30 AMCPIJan-0.3%0.3%0.5%-
Feb 178:30 AMCore CPIJan-0.1%0.1%0.1%-
Feb 178:30 AMInitial Claims02/12-415K410K383K-
Feb 178:30 AMContinuing Claims02/05-3900K3900K3888K-
Feb 1710:00 AMLeading IndicatorsJan-0.2%0.2%1.0%-
Feb 1710:00 AMPhiladelphia FedFeb-20.021.919.3-