Equities leap down, commodities leap up in '08
Dow -2.9% in Feb., -7.4% ytd, Gold +5% in Feb., +15% ytd
By David Bradshaw ~ links ~ wisdom
Editor, Real Money Perspectives ~ Daily email
Feb 29, 2008 ~ *news* ~ features ~ ((Podcast))
* Friday gold rose near $975/oz. on a weak dollar and $101 oil prices. Gold closed in NY up $4.80 to $974.30/oz, silver rose $.06 to $19.81/oz.
* In February gold prices have gained over 5%, while silver prices jumped up over 14%. YTD gold is now up 15% and silver is up an amazing 27%. Can this commodity bull run continue? Keep reading and judge for yourself.
* "The dollar continued its rapid decline to new lows against the euro on Friday, as the euro hit $1.5238 in early European trading," reports AP.
* Inflation jumped in January, eating away almost all the increase in personal incomes, the Commerce Department reported Friday. "It is a weak picture of the consumer," said Robert Brusca, chief economist for FAO Economics," reports MW.
* "Oil prices briefly surpassed $103 a barrel for the first time Friday as persistent weakness in the U.S. dollar and the prospect of lower interest rates attracted fresh money to the oil market," reports AP.
* "U.S. stocks plunged on Friday, declining for both the week and the month of February after massive losses by American International Group Inc. shook Wall Street and poor results from Dell Inc. rocked the tech sector. The Dow fell 2.9% in February, and is down 7.4% for the year," reports MW.
U.S. gross domestic product increased just 0.6 percent in the fourth quarter, The Commerce Department reported Thursday.
"The economy skidded to a near halt in the final quarter of last year, clobbered by dual slumps in housing and credit that caused people and businesses to spend and invest more sparingly," reports AP.
"President Bush sees no recession, while Fed Chairman Bernanke sees no stagflation, but precious metal prices see inflation, despite weakening U.S. economic data," said Swiss America CEO Craig R. Smith.
"The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen. The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships," reports WSJ.
Alan Greenspan said near-record Gulf Arab inflation would fall "significantly" were the oil producers to drop their dollar pegs, in contradiction to Saudi policy. "Against a backdrop of inflation, high oil prices and low interest rates the debate over currency reform has to take on greater urgency," he said.
Gold is up 15 percent this year as a U.S. housing slump and turmoil in credit markets led the Federal Reserve to lower interest rates when commodities were rising to records. The dollar declined on speculation Fed Chairman Ben S. Bernanke will signal more rate cuts in testimony to Congress today," reports Bloomberg.
"Our fundamental view on silver remains bullish for the next few years, until we begin to worry about new mine supply from primary silver mines, as well as from byproduct silver from other new gold and base metals mines," said RBC Capital Markets analyst Stephen Walker to TF.
The producer price index climbed by 1% last month, the Labor Department reported Tuesday. The PPI had fallen 0.3% in December after having registered a jump of 2.6% in November. Core PPI, which excludes food and energy prices, rose 0.4%, reports MW.
Consumer confidence fell to the lowest level in more than 14 years, amid mounting concerns about jobs and slowing business activity. Meanwhile, U.S. home prices plunged 9.1% in 2007, according to a survey released Tuesday.
"Forget paper money and IOUs. Commodities are the world's new "currency:" Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys," reports MW.
We believe gold and silver remain in the middle stages of a multi-year bull market as none of the fundamental factors driving prices higher have dissipated, indeed many are strengthening and becoming even more important – particularly the real possibility of stagflation," reports MarketOracle
. "The gold price is being underpinned by production losses and the continuing ‘managed’ devaluation of the US dollar. South African gold output is continuing to fall, exacerbated by the power problems being experienced there," reports Mineweb.
"I do not expect this cycle to peak at $1,000 an ounce gold, though the credit crunch may give it pause. The dollar price of gold has been moving in a long cycle, up from 1965 to 1981, down from 1981 to 1999, up from 2000 to 2008. Gold is a defense against inflation. In November the Americans will elect another inflationary president. That will be good for gold, but bad for the dollar," writes William Rees-Mogg at London Times.
"The fight against inflation is being sacrificed in G7 countries to avert the risk of recession and investors are likely to seek gold as an inflation hedge," said Mandy La Grange of Nomura, who forecasts gold to average $1,000 this year, reports FT.
The consumer price index increased 0.4% in January, driven by 0.7% gains in both energy and food prices. The government reports "core" inflation rose by .3%.
"We who eat and drive suspect government stats are rotten at the core. Worse yet, the real world rate of inflation is likely TWICE as high as reported," says Swiss America CEO Craig R. Smith.
"The dollar may fall to $1.55 per euro and 103 yen by June 30 as a deepening housing slump slows the U.S. economy, forcing the Federal Reserve to cut interest rates," according to Merrill Lynch Japan Securities Co. reports Bloomberg.
Dollar weakness typically benefits gold prices. The rising prospect of further Fed interest rate cuts virtually insures continued dollar weakness in 2008.
"The same oil price increases that make Arab rulers wealthy also are rapidly pushing the Middle East’s middle class toward poverty. Strikes, demonstrations and riots from Morocco to the Persian Gulf are becoming commonplace," reports Moneynews.
With platinum prices rushing above $2,100/oz., can gold be far behind? Gold prices historically have traded within $150/oz. of platinum prices during the last market peak.
Precious metals create investor confidence because they're not dependent upon Wall St., the Fed, nor any outside source to establish real value. The result is a continued flight to precious metals as the world's ultimate safe haven from economic uncertainty.
Recession or Stagflation lite?
The U.S. faces an unwelcome combination of looming recession and persistent inflation that is reviving angst about stagflation, a condition not seen since the 1970s," reports WSJ.
"Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson both acknowledged problems in the U.S. economy recently, but both said they believe the nation will avoid falling into recession," reports CNN.
This reminds your editor of the British economist who once said, "I never believe anything the government says until they officially deny it."
"Ben Bernanke indicated that policy makers are prepared to lower interest rates further to revive the economy as banks make it more expensive to borrow. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said.
"Defaults in the US housing market are spreading from sub-prime to the much larger stock of top-grade housing debt, threatening to set off a wave of even bigger losses for banks and investment funds," reports London Telegraph.
American's confidence in the economy sank to the lowest on record in January, "amid heightened fears about shrinking job opportunities and the possibility the country is falling into recession," reports AP.
"This could be a secular bear market in stocks that’s painful for a long time. There will be fits and starts upward, there will be rallies. But over the next five years, the market will be dramatically lower than it is today," says David Tice of Prudent Bear Fund, reports Moneynews.
"A growing number of top economists believe that the U.S. economy has now toppled into recession. Alarm bells were set off Tuesday by a grim report on service businesses, which make up the majority of the U.S. economy," reports CNN.
"One of the key decisions of the G7 meeting was to allow the International Monetary Fund to sell some of its $92 billion in gold reserves. The gold price is probably the best and most visible indicator of just how nervous everyone is about rising inflation and rampant currency destruction, and right now it's screaming red alert," reports Moneyweek.
"So what should you do if the IMF does decide to sell? GATA says buy! ... I imagine it'll be a good buying opportunity for the rest of us," concludes Moneyweek editor John Stepek.
"If the IMF sells gold now, it looks very unlikely to dent gold prices. Indeed, "every time the IMF has sold gold it has actually triggered more buying interest," says Mario Innecco, a broker at MF Global in London, to Bloomberg.
"What has been lost to mainstream economics is the fact that this economic identity is severely disturbed by the kind of monetary policy well-intentioned monetarists and supply-siders promote. As always, the end result is recession," reports BrooksNews.
"The freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. Credit counselors are now swamped by calls not just from people of modest means, but from professionals earning six-figure incomes," reports NYT.
"The Fed wants to drive the DJIA toward the 8,000 level, or below, in order to help create a deep recession which will have the effect of slowing consumption across the board and dampening the otherwise harmful effects of inflation," reports WND.
The Dow finished with a monthly loss of 4.9% in January. The S&P lost 6.3% and the Nasdaq declined 9.9%.
U.S. coin & currency news...
"Perth Mint was first in the annual lunar coin scramble. The variety of lunar coins showering from Perth outnumber those of all other world mints combined. Each Year of the Rat inaugurates a new 12-year cycle. It was the rat that won the race to determine the order of precedence among the 12 animals of the Chinese zodiac. For those westerners of a somewhat sensitive disposition, it will be the Year of the Mouse," reports Numismaster.
"In the latest example that the U.S. dollar just ain't what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise," reports Reuters. "The increasingly weak U.S. dollar, once considered the king among currencies, has brought waves of European tourists to New York with money to burn and looking to take advantage of hugely favorable exchange rates."
"It is hard to drown out the drumbeat of record bullion prices, but for a time, the news of the sale of an 1870-S silver dollar for $1.3 million proved that rarity, collectibility and desirability still have a place in the American coin market," reports Numismaster.
"The Professional Numismatists Guild has selected the Long Beach Coin, Stamp & Collectibles Expo as the site to launch a series of "Share the Knowledge" consumer education programs. The debut program, "Collecting U.S. Gold Coins," will be presented by authors Jeff C. Garrett and Douglas A. Winter at noon Feb. 14," reports NumismaticNews.
"To help celebrate its 26th anniversary of inspiring America to rediscover gold, Swiss America has just released a 2008 updated edition of A RARE OPPORTUNITY: GOLD 101, a new television special available on a FREE DVD hosted by Pat Boone. GOLD 101 covers all of the basics investors need before buying gold, including: four types of gold worth owning, five steps before buying gold, and six major forces driving gold prices higher," reports PRNW.
2008: Year of the Rat
"Forget about graphs, charts and economic forecasts. Wary investors in Asia are turning to feng shui masters to tell them which way the markets will head in the Chinese Year of the Rat," reports Reuters.
"The rat is a symbol of money to the earth industry ... Strong water element in the year indicates productivity and strong activity in the metal industries," said Raymond Lo, a feng shui master in Hong Kong who suggested investors put their money into property, mining and gold.
"Lo predicts stock markets will be soft this year as the elements of earth and water, which he says are strong in the Year of the Rat, weaken the fire element that influences shares."
Blast from the past ... "I would like to suggest that every American take a lesson from the Chinese "Year of the Golden Pig" in 2007 by starting their own personal golden piggy bank."
"Instead of viewing our homes as a piggy bank, we must diversify our resources into assets that will stand the test of time like gold and silver," said Craig R. Smith in December 2006. With gold prices rising 32% in 2007, it appears the Chinese were right on the money.]
"China became the world’s largest gold-producing country in 2007, replacing South Africa. In January 2008 China opened its first gold gold futures market in Shanghai, in response to its citizens’ zeal for gold," reports Forbes.
"Anything can happen from here"
"Gold may climb to $1,000 by the end of March," said Robin Wilkin, London-based head of commodities and currency technical analysis at JPMorgan Chase & Co. "It's hard to get overly bearish in gold because of the dollar," reports Bloomberg.
"Gold has enjoyed a great run over the past few years, but it hasn't been a straight path. But if you do your research, you can act with confidence that even if gold dips lower than you're buying it, the upside potential is huge. My preliminary price objective for gold is $1,065 per ounce, and it could go a lot higher than that," reports Investors.com.
"Anything can happen from here, including a rocket shot to $1,000/oz. gold over the next few weeks, which I consider to be a very good probability. We already have lift-off. Get ready for the rocket shot," writes James Turk's Freemarket Gold&Money Report at MW
"The price of gold is likely to peak at just over $1,000 per ounce in 2008. Gold is dancing to its own tune and not just being influenced by a weaker dollar," GFMS Chief Executive Paul Walker to Reuters. Walker estimated that investor demand was 12 percent of total demand for gold in 2007.
"The Gold Anti-Trust Action Committee (GATA.org) charges the U.S. government surreptitiously utilizes gold reserves to engage in international swaps and other market manipulations," reports WND. (listen to GATA founder Bill Murphy)
"The Fed is cutting rates to stimulate the economy, but times of crisis usually means investors head into gold," said Peter Hambro, founder of the second-largest gold producer in Russia to London Telegraph. Mr. Hambro expects worldwide stagflation to drive gold past the $1,000 barrier this year.
Quick-fix economic stimulus?
The U.S. economy slowed sharply in the fourth quarter, growing at a 0.6% annual rate, the weakest growth since the economy was pulling out of recession in 2002, the Commerce Department reported last week to MW.
"Democratic and Republican congressional leaders reached a tentative deal last week on tax rebates of $300 to $1,200 per family and business tax cuts to jolt the slumping economy," reports AP.
"Most single taxpayers would get $600 and most two-wage households would get at least $1,200. The deal includes an additional amount of $300 per child. A total of 116 million taxpayers will receive checks of some size," reports CNN.
"Government fixes will be temporary until the underlying structural problems are addressed and strategies are employed to work through those problems. It is time to allow kids to be kids, adults be adults and markets to be markets. If our markets are truly 'free markets,' then let them be free and they will fix themselves," writes Swiss America CEO Craig R. Smith.
"It’s hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don’t have and investors will become more alert to risk," reports NYTimes.
"The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday. The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010," reports CNN.
"While millions of investors face a potential panic on Wall Street, those wise enough to have put themselves onto a personal gold standard by owning gold remained cool, calm and collected, knowing gold is the perfect safe haven during financial storms such as this," reports Craig R. Smith.
"Forget rate cuts and stimulus packages. In Wall Street's eyes, the recession is already here and the credit crunch is far from over," reports CNBC.
More than three in four Americans believe the U.S. economy is already in a recession, or will be sometime in 2008. Only 19 percent of 1,000 Americans surveyed believe the nation will avoid a recession, while 57 percent believe that there will be a downturn this year according to a Fortune Magazine poll," reports CNN.
Gold Rush '08
"A Reuters global poll of 50 traders and analysts forecast gold prices surging more than 20 percent this year and gold retaining most gains in 2009 as dollar weakness, market turmoil and inflation fears stoke investor interest.
"Further credit events and increases in oil prices can create a 'spike' past the $1,000 level in the near term," reports London Telegraph.
"Gold prices will test a record $1,000 an ounce this year, boosted by growing investment interest, safe-haven demand and strong market fundamentals, a Citigroup metals analyst said.
"We believe gold has entered a new investment-driven phase. Catalysts are rotating from safe-haven demand, to currencies, to the re-flation trade, as new buyers enter the market," John Hill, director, metals research, at Citigroup in San Francisco," reports Reuters.
"The big lure to gold continues to be its tendency to hold value when the rest of the investment picture turns septic. As it's done of late, with U.S. inflation measures hitting multi-decade highs, U.S. stocks starting off the year with their biggest drop in 30 years and the global outlook looking both inflationary and at risk of a slowdown," reports MW.
"I’m convinced that in 2008 the world will witness a gold price explosion, propelling the shiny yellow metal into the next and perhaps most exciting stage of this bull market," said Swiss America CEO Craig R. Smith.
"If you have not yet taken action in acquiring a position in gold, you now have a golden opportunity to buy high quality U.S. gold coins at a historically low collectible (or extrinsic) premium, relative to gold's melt (or intrinsic) value," reports Dr. Fred Goldstein, Sr. Broker at Swiss America.
"Craig Smith and Swiss America have accurately forecast future trends of gold, oil and stocks over the last decade, and I expect his 2008 forecasts will be no different. Put your family on a personal gold standard this year so you're positioned to be protected and to prosper!" said Michael Savage, host of The Savage Nation.
"Keep in mind the price of gold would have to climb well above $2,100/oz. just to reach an inflation-adjusted new high. Therefore, gold has a long way to go. Suddenly the calls for $1,000/oz. gold now are almost a given," says Mr. Smith.
"We don't see any reason in this cycle why gold shouldn't reach its real all-time high, which is actually about $2,200 an ounce," said David Garofalo, CFO of Agnico-Eagle Mines, adding the time frame of three to five years." (Read 46 other experts forecasting $2,200 gold)
"The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence," reports London Telegraph.
"Now that the inflation arm of stagflation is appearing through the political camouflage, gold is in strong demand and people are jumping aboard the golden coach. Gold provides an insurance policy against catastrophy. Therefore, stay with a high asset allocation to gold and buy on dips," reports John Browne at Moneynews.com.
"Ross Norman, director of TheBullionDesk.com, said the world faces a new era of "peak gold" in which discoveries become rarer, leaving the market starved of the metal just as demand in China and emerging Asia begins to gather pace. Mr. Norman, the top forecaster for the London Bullion Market Association over the past four years, said gold would reach $1,200 an ounce this year," reports London Telegraph.
"In the Middle Ages gold fetched nearly $3,000 an ounce in real terms. The price fell to nearer $550 when Spain flooded the world with Aztec and Inca riches, and there it hovered for three centuries. But the modern era has been an aberration. Supply is exhausted. Perhaps we should now regard the Middle Ages as the proper benchmark price. One thing is certain: Gold will outperform paper as long as governments keep increasing the global money supply 15 per cent a year," reports London Telegraph.
"When measured in 'hard money' terms, the U.S Treasury’s 10-year Note lost 20% of its value compared to an ounce of gold since August 2007. Wouldn’t it make better sense to park excess cash in gold, rather than U.S Treasury IOUs, during periods of double-digit money supply growth and soaring commodities?" asks Gary Dorch, editor of Global Money Trends.
"It is very encouraging to see such a positive start to the gold market in 2008," said James Burton, chief executive of the World Gold Council: "It is evident that gold’s unique investment attributes as an effective safe haven and dollar hedge have resonated with investors during this time of financial uncertainty," reports FT.
"With the US facing a possible recession, economists have voiced growing concern about the threat of stagflation - where weak economic growth is twinned with out-of-control inflation," reports London Telegraph.
"Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come," reports AP.
Market analysts warn that more U.S. businesses are likely to hang "going bankrupt" signs on their doors next year as the twinned blows of slower economic growth and pricey commodities force the weakest companies to seek refuge from creditors," reports MW.
"Just as the U.S. dollar has farther to fall, so do the commodities have farther to rise. On that point, JP Morgan forecasts that of all the commodities, they expect precious metals to be the strongest in 2008, followed by agricultural products, base metals and energy," reports Goldseek.
"Experts say they expect gold could surge to above $1,000 an ounce in the next 12 months on continued weakness in the dollar and robust investment demand," according to a broad cross-section of professionals interviewed by TheStreet.com. James Turk says the next leg of the bull run should mean a rally of 30% next year. (See Swiss America survey of 47 experts)
"The rise in gold prices to this point has been steady and sustainable. For much of its rise, gold has been in a stealth bull market. But the gold price advance is no longer stealth. The chart says it wants to go parabolic," reports DailyReckoning.
"Can anything be as mesmerizing as gold?" asks Barron's in "Golden Opportunity?" back on 12/26/05. "Commodities are an asset class for the first time in history", says Barrons Roundtable member Mark Farber, who "thinks the price will eventually exceed $3,000."