Wednesday, November 18, 2009

More Money Less Gold

“A rising gold price, however, is no guarantee that gold stocks will rise,” notes Chris Mayer, highlighting a bitter reality to many long-term gold investors.

“If you look at the Amex Gold Bugs Index, for example, it’s pretty much where it was two years ago, even though gold has recently made a new all-time high. Gold miners as a group struggled with rapidly rising costs. So even though gold prices rose, they didn’t make much money. This only serves to highlight that there are other reasons to like gold stocks that have more to do with the economics of the businesses themselves and the price paid for them.

“Here’s one pictures that tells an important tale: A rising gold price means we should see more gold produced. That’s basic economics. In fact, miners have invested increasing amounts to gold exploration. But importantly, the number of new discoveries continues to fall, and is rather anemic.

“This a familiar pattern in the resource world in recent years. It’s no different in the gold market. Big discoveries are rare — and more expensive. According to data from Sandfire Securities, a typical gold mine development might go like this:

“Exploration, three-seven years and $15-50 million. Evaluation may take another three-five years and another $20-30 million. Development could take another two-four years and from $50 million to over $1 billion in costs. Finally, you’re ready to operate the mine.”

Blue Chips Are the New Black

WHEN THE DOW JONES Industrial Average set what was then its rally high in mid-October, the venerable blue-chip measure turned from a slight laggard to a clear leader relative to the broader market benchmark, the Standard & Poor's 500. Bigger suddenly was better.

More than a third of the Dow's 30 component stocks already were in strong trends while most of the rest were in decent technical shape. From a chart-reading point of view, the overall trend is up. If we dig deeper we see that breadth, or the participation by component stocks, confirms the Dow's trend.

In looking over the 30 Industrials, I put them in four buckets. The first was the "strong-trending" group. Among those, American Express (ticker: AXP) exhibits a very impressive technical structure (see Chart 1). (more)

Jay Taylor: Turning Hard Times Into Good Times

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Hiding Debt Just a Juggling Trick

The Treasury Department—whose mission has ostensibly expanded to include management of government finances, the promotion of economic growth and stability, and the provision of safety, soundness, and security in financial systems—will hit its debt ceiling (yet again) by year’s end.

In the final chapter of The Wealth of Nations, Adam Smith argued that once national debts have accumulated to a certain degree, they are rarely paid. Government officials, he argues, are both unwilling and unable to get serious about debt. They don’t want to lose popularity by raising taxes and they will never cut spending enough. Instead, they employ “juggling tricks” to push the debt problem into the future and hide the full costs.

The most improper “trick” Smith forecasted was currency debasement, “by which a real public bankruptcy [is] disguised under the appearance of a pretended payment.” President Obama and his team of economic advisors would do well to revisit Smith’s timeless discussion of “juggling tricks,” because despite the president’s “exit strategies” rhetoric, further debasement seems to be the inevitable policy path. (more)

Post Office reports loss, may cut Saturday service

The U.S. Postal Service reported a $3.8 billion loss in the 2009 fiscal year, and plans to propose to Congress in 2010 that it drop Saturday delivery.

The agency already reduced expenses by $6 billion during the year ended Sept. 30.

Those measures included eliminating 40,000 jobs, however the cash-strapped agency still employs over 712,000 people. The Postal Service also reduced overtime hours and lowered transportation-related costs. (more)

SA gold miners on final deathwatch as scientist finds gold reserves more than 90% less than claimed

The apparent bottom line in a paper published in the South African Journal of Science is that South Africa's gold industry is on final deathwatch, despite claims of massive existing below-ground reserves. Chris Hartnady, research and technical director of Cape Town earth sciences consultancy Umvoto Africa, has found that South Africa's Witwatersrand goldfields are around 95% exhausted, and anticipates that production rates should fall permanently below 100 tonnes a year within the coming decade.

Gold production from the Witwatersrand, the biggest known gold field in the world, peaked at around 1,000 tonnes in 1970 and has declined ever since. Hartnady says that while initially (1970-1975) the decline was "quite precipitous", it has been interrupted by only short periods of slight trend reversal (1982-1984 and 1992-1993). (more)

Mortgage delinquencies hit another record in 3Q

The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That's up 58 percent from 3.96 percent a year ago.

Being two months behind is considered a first step toward foreclosure, because it's so hard to catch up with payments at that point.

The rate was up 7.6 percent from the second quarter. That's a much smaller jump than the 11.3 percent rise in the second quarter from the first, and the 14 percent leap seen in the quarter before that. (more)

Eight in 10 savings accounts LOSE cash: Inflation goes up - but banks still pay interest rates just above zero Read more:

More than eight in ten savings accounts are paying such a paltry interest rate that customers are effectively losing money, research revealed yesterday.

Financial experts said savers have become the 'sacrificial lambs' of the Bank of England's desperate attempts to rescue the economy.

Because the Bank has held down interest rates, the value of their savings is not keeping pace with inflation, so savers are losing money in real terms.

Silver Prices to Hit New Highs in 2010

Silver may yet outshine gold in 2010 as spot prices for the white metal respond to the prospect of a surge in industrial demand. With a little additional help from investment demand, silver may even rally into the $25 range.

So says Chintan Parikh, a commodity analyst at the CPM Group – a leading New York-based commodities research, consulting, asset management and investment banking organization.

“Prices may spike as high as $25,” he says. At the very least, it should breach its most recent high, which was set at $20.79 in the spring of 2008, he adds. (more)

Tiny Mauritius Tells US To Shove Its Dollar, Buys 2 Metric Tons Of Gold From IMF At $1,115 An Ounce

The latest development in the gold bubble saga, and one which will likely cause the precious metal's price to spike even higher, comes from the tiny island of Mauritius which according to Dow Jones has purchased 2 metric tons of Gold from the IMF for $71.7 million. The price works out to approximately $1,115 per ounce. More as we get it. (and yes, this is a picture of Mauritius not some CNBC anchor hangout). (more)

Gartman: Gold Price Will Keep Rising

Gold prices are forming a bubble but they're going to keep rising anyway, says investment guru Dennis Gartman.

Prices of the precious metal have hit $1,130 an ounce, which Gartman admits is “mind boggling.”

“It is a gold bubble,” Gartman told CNBC.

Nevertheless, the dollar should continue weakening and that means gold prices will continue rising.

Gold is traded in dollars, so a weak dollar makes the price of gold attractive, especially when purchased in stronger currencies. (more)

Roubini: Oil and Metals Near Top

Rallying commodities such as oil are due for a crash, as economic fundamentals cannot support any more meteoric rises, says New York University economist Nouriel Roubini.

The global economy is recovering but on a slow pace due in part to weak labor and credit markets, which will make demand for commodities low when compared to the supply.

That means a correction is due in 2010, Roubini tells Hard Assets Investor.

“Take oil prices: They have gone up from $30 a barrel to over $80, at a time when demand is back to 2005 levels, and oil inventory is at all-time highs,” Roubini says. (more)

Why Silver will be a Better Investment than Gold

Recently many of my readers have been asking, "Why is silver lagging gold?"

After all, in March, 2008, gold hit $1020, and silver exceeded $20, yet here we are now, with gold now above $1145, and silver at $18.33, not even at $19!

The really funny thing is the way the popular media spin the price relations.

When silver underperforms gold, they say, "Silver is not confirming gold's rise, therefore, gold prices are due for a fall."

And when silver outperforms gold, they say, "Silver is exceeding gold's rise, therefore, this bull run is overdone, and thus, gold prices are due for a fall." (more)