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Slim Pickings...in Everything
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Good Day,
Surprise, surprise. To the dismay of the putative gold and silver coin shortage propagandists and overpriced coin auctioneers, Kitco reinstated some two dozen hitherto thought to be 'impossible to find' gold and silver products onto its store pages. Probably because they were to be found. And soon, the premiums on same will also return to more familiar levels. Patience has its rewards.
Thursday was rate aggressive cut day across Europe and in the UK. Hefty slashes of 1% in Britain (to levels not seen since 1939) and .75% by the ECB (the biggest such cut in its young history) framed the stark reality of contracting economies and the need to stimulate like there is no tomorrow. The US dollar reacted as expected, rising back to 87.25 on the index, while crude oil fell more than $1 to $45.68 per barrel. Forecasters at Merrill Lynch predict sub- $25 crude oil next year. Not a typo. Back to 2002 we go.
New York gold prices fell to a low of near $761 before turning positive during the mid-morning hours. The trade remains nervous as further episodes of fund liquidation are seen as quite plausible, and as the commodities complex tackles difficulties of major proportions (see below). Silver fell 14 cents to $9.51, while platinum dropped $6 to $800 and palladium lost $1 at $171 per ounce.
Focus remains on the Formerly-Big-But-Now-Humbled-Three, as they plead for a commutation of their sentences to some kind of a pre-arranged bankruptcy deal provided it comes with a promise of billions in help from the government. Frosting on this poisoned economic cake? U.S. factory orders fell 5% + in October. The ground-proximity warnings are blaring pretty loud these days. Hard to imagine a soft landing right about now...
The so-called Black Friday was evidently insufficient to pull retail chains out of a stall for the month of November. With the exception of Wal-Mart (whose sales rose 3.4%) the list of slumping retail sales reads as follows: Target -10.4%, Kohl's -17.5%, J.C.Penney -12%, Macy's -13%, and Costco -5%. R.I.P. the American shopper. All shopped out. As for jobs, the cutting campaign rolls on. That list reads similarly:
Credit Suisse 5,300 to go, Nomura 1,000 to go, DuPont 2,500 to go, Viacom 850 to go, and AT&T 12,000 to go. A pink (slip) Christmas in the making for 30,000 more. With four-week jobless claims averaging a 16-year high already.
Fresh news from Shanghai, where authorities indicate that gold bullion demand in the country, (the world’s second-largest consumer of the metal) may stagnate or decline this year. Price gyrations could keep buyers at bay, and industrial users could also abstain from buying, due to the sharp economic slowdown. This, according to the China Gold Association. Consumption may reach 360 tons as compared to the record 362 tons consumed last year. In the meantime, production could rise by over 2% to 276 tons. China is now the leading gold producer on the planet.
Given what you have just read in the preceding paragraphs, it should not come as a surprise that commodities are in the ICU, and that their outlook is critical at the moment, and only guarded for a couple of years out. The Wall Street Journal finds a situation not unlike that we saw only eight years ago, when another also thought-to-be impenetrable bubble popped. As then, someone was sold a bill of goods and is now paying the price.
"The analyst who projected $200 oil should have lopped off a zero.
The crash in oil, copper, grain and other commodity stocks in 2008 has outpaced the crash of technology stocks at the turn of this century -- with many taking only six months for the 80% wipeouts that took the tech sector two years. Chart watchers warn that the sheer momentum of the commodities selloff will likely carry losses even further. In other words, the very fact that oil has fallen by $100 and the stock of Potash of Saskatchewan by nearly $200 since the summer makes further declines likely.
"All of commodities are collapsing," said Frank Lesh, futures analyst and broker at FuturePath Trading. "The oil charts are bearish. I expect commodities to remain under pressure in the first quarter of next year."
For the first half of 2008, hedge funds and other institutions placed speculative bets on oil and metals futures and on commodities stocks, telling clients that the problem in the U.S. banking sector couldn't slow the growth of China, India or other major natural-resource consumers. Brokers vied with one another for the highest oil target, just as they once did with dot-com prices.
 Ridin' the commodities bull...Yeee-Ha!
"Half a billion people are moving into the middle class every year and they're going to need gasoline," the bulls said, echoing breathless promises of the past, such as "We will soon be buying our groceries online."
In July, as the thesis floundered, the bubble burst.
"The majority of tech dot-coms and Internet names went to single digits," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "If we think of this as a true bubble comparable to that, there could very well be some pain to come."
Shares of FreeportMcMoRan Copper & Gold led the sector down again Wednesday, falling 17% to $18.05 -- its lowest level in more than five years and about 86% from its summer peak. The miner warned that it would have to cut back production further to reflect the plunge in copper prices. Earlier this week, fertilizer maker Mosaic warned of similar effects on its plans from the drop in grain prices, bringing it to new lows for the year. These are likely just the beginning of production and profit cuts for these companies. And hedge funds facing requests for cash back from clients are likely still major holders.
For example, Goldman Sachs Group estimates that FreeportMcMoRan was among the most frequent stocks to appear in lists of top-10 holdings of major hedge funds, as of Sept. 30. To play the continuing down trend in these stocks, Mr. Detrick recommends buying bearish put options on Potash of Saskatchewan, hedged with bullish calls on agribusiness company Monsanto, which has held up better than other agricultural-commodities stocks. On Wednesday, Potash fell 4.3% to $52.81, testing its last line of support from 2007, according to Mr. Detrick.
"You get these big bounces," he said. "If you look at the monthly chart of this thing, it was at $240 back in June. That's an outright collapse."
The days of $3,000 hotel rooms and $9 million dollar villas in Dubai are apparently also numbered, as the local real estate bubble turns to sand slipping through sellers' fingers. No one ever learns. Pity the last guy left holding the bag.
Until tomorrow,
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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