Gold "Offers Buying Opportunity" as Monetary Debauchment & Peak Output Make $5000 "Possible" by End-2010

THE PRICE OF GOLD retreated from its seventh new record high in 11 sessions early Tuesday, dipping 1.3% from Monday's late top as world stock markets also fell for only the fourth time in November so far.

Crude oil fell and the US Dollar bounced on the forex market after Federal Reserve chairman Ben Bernanke spoke of a "Strong Dollar" in his annual speech to the Economics Club of New York.

Citing 10% unemployment and weak GDP growth, however, he said the Fed "will calibrate the timing and pace of any future tightening [of interest rates from 0%] to best foster maximum employment and price stability." (MORE)

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)