Wednesday, June 15, 2011
I always say that you have to be buying gold when you are bored by the market. People tend not to buy into corrections because they are scared to take losses. However, in the grand scheme of things, losses are no big deal. Bull markets will always correct your timing mistakes as long as you don’t panic and sell. It’s also important not be too heavily leveraged.
Back when silver was rallying, I said that on a spike to new highs I would be leaning bearish. Well on a spike to new lows in gold or silver, I will be leaning very bullish. I would much rather see a sizable correction here than a rally. A sideways consolidation along the lines of what we’ve seen the past couple of months is fine too. Gold and silver are both trading very constructively for the long-term oriented investor. They are both building energy for the next rally.
The thing about these markets is that no one has a crystal ball and you must observe how these corrections play out, then invest accordingly. So for example, if silver corrected to $45, then shot right back up to and beyond $50, I wouldn’t really be celebrating. The 10% correction, although somewhat sizable, would not have scared off enough speculative money. The correction would also have been way too shallow for the “smart money” to step in. You need the smart money to be buying because they are the ones who, like Old Turkey, see a rally and sit tight while everyone is selling. They are the ones who create the supply constraints that create the huge rallies.
Anyway, I added some positions yesterday because these price levels are fairly attractive. Some precious metal stocks are down 30%-40%, which is great as far as I’m concerned.
I like to buy when pretty much any scenario is OK to me. If we rally from here, I’m fine with that; if we correct further, I know that the downside is somewhat limited, so I’m fine with that too. I can just buy more closer to the bottom, which is always a good strategy.
I think people are generally starting to understand that an economic recovery will be a drawn out process. The huge overhang of debt we carry and the interest we send abroad act like weights to economic growth. Every day that passes by we add billions to our debt. In other words, the fundamentals for precious metals just get stronger by the day. Although we probably have not hit rock bottom, I personally think it is a decent time to add to your positions and take a vacation. Don’t worry, Helicopter Ben will take care of the rest for us.
The coming summer should be exciting for traders! While summer trading generally tends to be slow, this one could be different. A large number of other professional traders I talk with are all feeling the tension building in the market. We all think some big movements are just around the corner and the big question is which way are things going to move?
Depending on your trading style you may be viewing the recent market action as the beginning stages of a bear market (major sell off). A bear market is not necessarily impossible as the U.S. Economy is showing the beginning signs of weakness. The fact that stocks have moved lower for almost 6 weeks straight is a recent reminder that we may not be out of the woods just yet. The recent price action and negative sentiment has been harsh enough to make 99% of traders bearish.
In contrast, some traders may be seeing this market as an oversold dip preparing for a bounce/rally in the bull market which we have been in since 2009. Some traders may see this as a buying opportunity because you are a contrarian. Most contrarians generally want to do the opposite of the masses (herd) who are merely trading purely out of emotional sentiment.
I myself have mixed thoughts on the market at this point in time. I’m not a big picture (long trend forecasting) kind of guy but my trading partner David Banister is great at it. Rather I am a shorter term trader catching extreme sentiment shifts in the market with trades lasting 3-60 days in length. So looking forward 2-5 days I feel as though stocks and commodities are going to bottom and start to head higher for a 2-6% bounce. At that point we need to regroup and analyze how the market got there… Was the buying coming from the herd, institutions, or was it just a short covering rally? Additionally, where are the key resistance levels and did we break through any?
During extreme sentiment shifts in the market we tend to see investments fall out of sync with each other for a few days. I feel the attention will be on stocks and we get a bounce this week. I am expecting commodities to trade relatively flat during the same time period.
OK let’s take a quick look at the charts…
Dollar Index 4 Hour Candles
I feel as though the US Dollar is trying to bottom. It is very possible that we test the May low at which point I would expect another strong bounce and possible multi-month rally. So if the dollar drops to the May lows then we should see higher stocks and commodities, but once the dollar firms up and heads higher it will be game over for risk assets.
Silver 4 Hour Chart
Silver has formed much of the same pattern that oil has. On a technical basis its pointing to sharply lower prices still. The fact that silver bullion went from an investment to a speculative trading instrument within the past 8 months makes me think it could test the $25 area. The one thing to remember here is that silver is still overall in a bull market. This is a 50/50 guess in my opinion as it nears the apex of this pennant pattern.
Gold 4 Hour Chart
Gold has held up much better than other metals and commodities and I feel that is because it’s still seen at the REAL safe haven. But reviewing the chart Im starting to see bearish price action beginning to take place.
Canadian Natural Resources (NYSE:CNQ) plans to continue the company's focus on oil development in 2011, while also working selective higher return natural gas assets in an effort to hold acreage. The company is also putting a greater share of capital into longer-term projects over the next few years.
Canadian Natural Resources reported production of 632,000 barrels of oil equivalent(BOE) per day in 2010, with 67% of this production composed of oil. The company spent $5.5 billion in total capital in 2010 across its portfolio, including acquisitions and in the midstream business.
In 2011, Canadian Natural Resources estimates that its production will be in a range between 582,000 and 633,000 BOE per day. This poor growth outlook is due to a fire in January 2011 at the company's coker unit at the Horizon oil sands project. The fire caused an interruption of production and reduced the company's revenue by $595 million relative to the first quarter of 2010.
Another company involved in developing the oil sands in Canada include Cenovus Energy (NYSE:CVE), which recently raised production targets due to better-than-expected performance at the company's Foster Creek project.
2011 Capital Expenditures
Canadian Natural Resources has the bulk of its exploration and production assets in North America, and like most operators, the company allocated its capital to those projects with the highest returns. In 2011, more than 80% of its capital will be spent on oil projects across its portfolio. This tilt towards oil is a continuation of a trend that began in 2005, when only 40% of its capital was directed towards oil.
Canadian Natural Resources has allocated $3.76 billion in capital in 2011 to develop oil properties across its portfolio. The company is also spending between $1.1 billion and $1.2 billion in capital towards its Horizon oil sands project, which requires extensive repairs due to the fire in early 2011.
Many of these oil projects will be more long term than previous years. These includeenhanced oil recovery projects targeting light oil resources, thermal oil and heavy oil projects. The company is also working on long-term expansion of its Horizon oil sands project.
Canadian Natural Resources expects that this level of development will lead to an 11% increase in North American crude oil production in 2011. This excludes production from the Horizon oil sands project.
In the international space, Canadian Natural Resources is using $420 million to explore and develop light oil assets in the North Sea and offshore West Africa. This will allow the company to drill or work over eight wells in 2011.
Other companies involved in the hunt for oil and gas resources in the international area include Harvest Natural Resources (NYSE:HNR), which just announced a discovery off the coast of Gabon. Noble Energy (NYSE:NBL) recently entered a joint venture to explore for oil and gas off the coasts of Senegal and Guinea-Bissau.
Natural Gas Assets
Canadian Natural Resources has more than 15 million acres of leasehold in Alberta, British Columbia, and Saskatchewan. The company has allocated $750 million in capital in 2011 to develop natural gas assets which generate returns that can compete with oil projects.
Canadian Natural Resources will also drill extensively in 2011 to hold its acreage across its western Canadian portfolio. The company's natural gas production in 2011 will be approximately flat from 2010, jumping by only 8%.
The Bottom Line
Canadian Natural Resources is increasing the company's capital bias towards longer-term oil projects in 2011, while also drilling selected natural gas assets designed to hold acreage in its portfolio.
The Chart Store had a fascinating series of charts this weekend looking at Household Net Worth in a variety of ways:
Household Net Wealth Relative to GDP
Household Net Wealth Relative to Peak and Trough
Housing charts after the jump
Total Residential Real Estate Value
Owner’s RE Equity (Value minus Debt)
So it’s not a huge surprise that Paul has asked Obama administration officials to audit the content of the nation's 700,000 gold bars held in Fort Knox, according to an internal Treasury document obtained by CNBC.
Talk has spread over the Internet that our government has secretly sold off the nation's gold supply and replaced it with metal bars that are merely painted gold.
(Getty Images photo)
But now he wants Treasury Department and U.S. Mint officials to testify at a June 23 subcommittee hearing about the Fort Knox gold’s authenticity.
The Obama administration may not be too enthusiastic about his idea. The Treasury document says it would cost about $15 million, requiring 400 workers to spend six months on the job.
The Treasury's Office of the Inspector General audits the Mint once a year.
Meanwhile, gold prices have bounced back from a three-week low amid concern about inflation.
“Gold is embracing the inflationary discussion,” Adam Klopfenstein, a senior market strategist at Lind-Waldock, tells Bloomberg.
The precious metal traded at $1,522 an ounce Tuesday afternoon.