Monday, March 31, 2014

Pain and Gain at Your Gas Pump

Are you paying too much at the gas pump? Are you sure?

On Saturday, I posted four energy charts, three of which had to do with crude oil. Here are two more energy charts, from Bespoke Group, having to do with the price of gasoline ...

Yes, gasoline prices are going up ...



In fact gasoline prices are up 12% since November. However, gasoline prices ALWAYS rise this time of year. Going back to 2005, the average price of a gallon of gas has risen in the first quarter every year for an average gain of 15.4%, according to Bespoke's analysis.

Bespoke doesn't explain that it's what happens when the refineries make the switch from the winter to summer blend of gasoline. So, there's no voodoo involved.

As refineries switch to cleaner summer blends, inventories go down and prices go up. Gasoline inventories decreased by 5.1 million barrels to 217.2 million barrels in the most recent count. At 217.2 million barrels, inventories are down 4.0 million barrels, or 1.8% lower than one year ago. 

The interesting thing is comparing the daily change in the average price of a gallon of gas so far this year to the 'typical' annual pattern going back to 2005. 


In other words, you're feeling pain, but not as much as usual. And that's a gain for consumers.

So why did consumer sentiment fall in March? The Thomson Reuters/University of Michigan's final March reading on the overall index on consumer sentiment came in at 80, down from 81.6 the month before, and below consensus estimates.

And this is despite the fact that consumers are spending more money.

Bonddad, writing at XE.com, reports on Consumer spending
ICSC -1.5% w/w.  +1.7% YoY

Johnson Redbook +3.1% YoY

Steel production is up. Railroad transport is humming along. Money supply is increasing. So why are consumers feeling so down?

Sunday, March 30, 2014

Silver Eagle Sales in 2014 -- Bullish Chart

This week, we heard news that Silver eagle sales for March hit a record. And the month's not over yet.

 Here's a chart of U.S. silver eagle sales in the early months of 2013 and 2014 ...

You can see that many more silver eagles were sold back in January of last year compared to January of this year.  The bullish news is that silver eagle sales picked up in February of 2014 and again in March.

However, there's a good reason that silver sales dropped in January year over year. There simply weren't any more to sell.

What happened was the US Mint didn't start selling the 2014s until the end of the second week in January. What's more, authorized dealers bought every allocated silver eagle they could get their hands on that month. So, they literally couldn't buy more than the 4,775,000 silver eagles they bought in January of this year.

All in all, this seems pretty bullish, at least for silver sales in the United States.

Saturday, March 29, 2014

Violin at Sunset

I was prepared for another lonely night away from home when I walked by a window of the hotel and heard beautiful violin music coming from the grassy esplanade behind the Park Hyatt Aviara in Carlsbad, California.  It turned out to be violinist Martin Shaw ...

Let's see if I can upload a video of a piece of his performance of Ashokan Farewell ...


What beautiful music. He played a lot of old time favorites. A couple of girls, daughters of guests at the hotel, ran around behind him. One wore blue butterfly wings, the other orange. They danced to the music, which was wonderful. Another young girl showed up to do cartwheels.  

So, I had a top-notch music performance, kids dancing around, the crisp, clear air of Carlsbad in March, and all framed by an excellent sunset.

He didn't have any of his music for sale, so I'll have to look him up online at martin.shaw@gemsong.com.

After all, I'd like to hear his music without people chattering away in the background.

That was the one unfortunate thing. 

A group of transient Visigoths behind me chattered away about the banal inanity of their lives, and did it very loudly. They would not shut up. They were like a bunch of monkeys gibbering away on the steps of a temple, blind to the grandeur and beauty around them.

It's probably because they're part of the generation brought up watching entertainment at home. So they have no class, no sense of how to act at a public performance.

I found out (because they're so frickin' loud) that they were a bunch of golfers. That means they're here with the LPGA tournament. I only hope I have the opportunity to show up at an LPGA tournament and talk VERY LOUDLY when they're trying to do their jobs.

Anyway, it was great music, Martin, monkeys and all. 

Gold Charts, Energy Charts, The Russians Are Coming!

As Broader Fears Fade, Gold Is Tarnished
Some investors are backing away from gold, as the prospect of higher U.S. interest rates and an easing of tension in Ukraine sends them in search of riskier assets.

On the other hand ...


10 Indicators Russia Might Invade Ukraine

Sean's note: Many of these seem spot-on. However, the author makes a point of referring to Russia as the "Fatherland." While Russia is sometimes formally referred to as Otechestvo (отечество) or Otchizna (отчизна), both of which mean "fatherland," the more colloquial and widespread word used is Rodina (birthland). And Rodina is a feminine words and typically personified as a mother (Sometimes referred to as birthland-mother). Hence, "Mother Russia."

My point is, the author has an ax to grind, and is willing to bend facts to make his point. That said, I gave a natural gas presentation this week in which I lay out my case for Russia invading Ukraine. Interestingly, my point -- that Russia covets the energy-rich areas in Eastern Ukraine -- was not among his points. So I guess now there are ELEVEN indicators/reasons why Russia could invade Ukraine. Holy crap!


See also: Ukraine: Divvying Up The Breadbasket Of Europe for a fascinating read. And it brings us to one more fascinating map of Russia ..




So, let's make it 12 reasons why Russia could invade Ukraine -- the last being to get China on its side.  Do you hear about any of this from the mainstream media? No.  And that brings me to one more story ...


State of Journalism: The Lost Art of Fact Checking 


Even by the end of the 1990s, the fact checker model was fading at Time Inc. At that time, it wasn’t so much financial pressure, I don’t think, as it was the need for speed. What piece could afford to sit with a fact checker for two weeks before publication? 


Enough of that. Let's move on to less fear and more greed.


White House strategy to cut methane takes aim at oil industry

he first big target is the oil industry, with new Interior Department regulations coming later this year to curb venting and flaring of natural gas at wells on public lands and wider air mandates possible from the Environmental Protection Agency in 2016.

In other news, natural gas storage in the U.S. is at a 10-year low.




That has big implications for prices for the remainder of the year.



And also interestingly, US oil & liquids production hit 10.58 million barrels per day in January, the 2nd most since March of 1986 


So, we must be swimming in oil, right?  Not exactly. In fact Crude oil inventories at Cushing, Oklahoma, hub are down 32% over the past two months

But where did all the oil go? Well, US exports of petroleum products rose to 245,000 barrels per day, according to the EIA

Finally, China is now the world’s largest net importer of petroleum and other liquid fuels

That's food for thought, eh?

Have a great weekend.

Friday, March 28, 2014

Friday Wrap Up -- Gold, Cybersecurity, and Happy Birthday

I wrote a story for InvestmentU.com on Monday that was published Thursday ...

How to Play This Pullback in Gold

There's no sugar-coating it. Gold got off to a no-good, horrible, very bad week on Monday, and it hasn't yet recovered. I expect to see the yellow metal test important support this week or next. The question is, what should active traders do when gold slumps? Let me show you some options.

First, let's look at what has pounded gold.


Read the rest ...

And I wrote a story for Free Market Cafe on Thursday that was published Thursday, making me look quite prolific ...

ARE YOU BEING HACKED RIGHT NOW?

This week, I spoke to a room full of 500 people. Most of them had experienced some kind of cybersecurity breach. And yet very few of them had taken the most basic precautions. That worries me.

Read the rest ...

Gold Today

Gold is finding support at 1,292, where its 50-day moving average crosses up through its 150-day moving average.  Maybe we'll see it reclaim $1,300 to end the week, or maybe we'll see it go down and test support around $1,284.  

The bears think gold will go lower because they see improvements ahead in Europe and the US, and generally improved health in capital and credit markets. In other words, they think the fear trade is dead.

I think the fear trade will come back. I had dinner with Frank Holmes, of US Global Investors,last night at Rick Rule's gorgeous California home. And Frank can tell you a lot about the fear trade.  Frank had some very interesting insight he shared last night. But I won't steal his thunder. He's speaking today at the Investment U Conference I'm attending in Carlsbad. If you aren't attending the conference, US Global recently released a report titled "How Government Policies Affect Gold's Fear Trade."

But for me, the more important aspect of gold is the love trade. We see the love trade in China continues to pick up steam. India's restrictions on gold imports could be changed ahead of elections starting next month -- at least, we keep hearing that will happen (see also this) -- but we haven't seen that market budge yet. So stay tuned. 

A Special Note for My Daughter

Finally, it is my daughter's birthday. I could write whole pages about how much joy she has brought into my and Cindy's life. Ellie is brilliant, witty and bursting with love and goodness, an inspiration to everyone around her.

But one thing that sticks in my memory is when Cindy and I brought a baby girl to a beach house in St. Augustine, where we spent a wonderful long weekend with friends. Ellie was just a toddler then, and she was overjoyed to run and run and run around on the beach, entranced by the water and the sand between her toes.

She had so much fun, that that night, she actually fell asleep in her high chair during dinner, going face down in her spaghetti.

But as much fun as she had, we had 10 times that much just watching her and experiencing things through her eyes and laughter.

Fast forward to today -- Ellie is awesome. She's everything you could want in a daughter and more. And I'm so glad she's part of my life.

Happy birthday, Eleanor.



Wednesday, March 26, 2014

Gold Struggles Despite Big Purchases

Gold looks like it's going to go down and test $1,300 today.  If support breaks, I wouldn't be surprised to see $1,280.  However, there are a lot of bids waiting for gold at $1,300. That could be the next bottom.

In this next chart, you can see how gold is testing support.

Now, this is expiration day for April gold options, and so that may have something to do with it -- the market makers are simply screwing with option buyers. So maybe we'll see movement in price tomorrow.

Short-term price action aside, the news on gold SEEMS to be bullish. Let's start with the huge amount of gold that China bought in February.

China imports of gold through Hong Kong for February were 30% higher than in the previous month, AND 79% higher than in February 2013 according to calculations from Bloomberg based on the latest Hong Kong official data. You can read a more in-depth examination of Chinese gold demand from Koos Jansen HERE.

And it's not just China.
  • Iraq bought 36 metric tonnes of gold this month valued at about $1.56 billion in the largest purchase by a nation in three years.
  • Russia has increased its gold holdings by 7.247 tonnes to 1,042 metric tonnes in February.
  • Turkey and Kazakhstan also raised their bullion reserves, according to IMF data. Turkey's gold holdings rose 9.292 tonnes to 497.869 tonnes, the data showed.
Remember, this is the year that central bank buying of gold was supposed to slow down. Apparently, that's not happening.

Also, gold held by exchange-traded products jumped 6.9% in February, the first increase in 14 months. That's also according to Bloomberg data. You'll remember it was massive selling of gold by the ETFs that hammered the yellow metal lower last year. More recently, ETFs bought gold on Monday and sold it on Tuesday. Maybe they're confused.

The Bearish View

Still, the bears will tell you that the fact that gold is NOT rallying on the back of all this bullish news is, in itself, bearish.

Are they right? We'll see. I would remind you that 90% of the contracts on the COMEX are never delivered; they're just paper.  Meanwhile, people in China take delivery on 95% of the contracts on the Shanghai exchange. 

Meanwhile, the prices of most gold mining equities are at the lowest levels they have been since the depths of the previous gold bear market in 1997-2002, according to research from CPM Group. So if you're looking to buy gold miners on the cheap, now is a good time. More on the recent carnage in miners here.

If your'e trading short-term, I hope you raised stops on positions you have gains in. If you're trading longer-term, this probably won't amount to much. The lows of last summer are probably the lows for gold. And that means pullbacks like this should be buying opportunities.

Tuesday, March 25, 2014

Will Gold Hold Support?

Gold seems to be spinning its wheels today, and may end up the day flat. That's interesting, considering that it ended yesterday right at support. Here's a chart of gold through yesterday's close ...
(Updated chart)

You can see that gold broke short-term price support. I've added Fibonacci retracements, which are common support levels watched by technical analysts.

Gold got sucker-punched with a 1-2 combo, starting with Fed Chair Janet Yellen's announcement last week that interest rate hikes might start sooner than anyone expected, and followed by yesterday's announcement of poor China economic news

On the other hand, the big, bullish fundamental forces are still in place despite the short-term scares. 

Stay tuned.

Monday, March 24, 2014

What Strange World am I in Now?

I read about alternate universes -- versions of our world that are slightly different to very different from our own. I think I might have slipped into one this morning.

I'll explain: I'm flying to San Diego for an Oxford Club conference. And as I went through TSA security, the agent told me "leave everything in your bag, please."

"HU-WHA...?" I gasped.

"Leave your belt and shoes on, too."

Now I should explain that I had my belt, sportscoat and shoes already off.  As an air travel veteran, I can undress and empty my bag in the blink of an eye. Heck, I can get undressed so fast, I'm thinking I should take up a side career acting in porn.

"You want me to leave everything in my bag?" I asked in wonderment, looking at the pile of electronics I'd already deposited on the steel table.  I'd puzzled why there weren't any plastic buckets to put my stuff into.

"Yes."

"And leave my shoes and belt on? How about my jacket?" I waved the crumpled fabric at him.

"You can wear it," he said, and waved me to the machine.

So I put all my stuff back together, and walked through the scanner.  On the other side, another agent dabbed my palms with a wand.  Then I was waved on through.

Let me tell you -- in the universe I went to bed in last night, going through TSA scanning is a tedious affair of undressing and unpacking, then redressing and repacking on the other side.

Apparently, in the universe I woke up in, that is not the case. It's not the case at all.

Which makes me wonder: Which universe am I in now?

Is Mitt Romney President? Are we still going toe to toe with the Soviet Union? Are the Twin Towers still standing?

Do people ride dinosaurs while hunting unicorns?

Because a world where the TSA tells me to keep all my clothes on and everything in my bag, well, that's a world I have trouble imagining.

Wednesday, March 19, 2014

GLD Pulls Back to Support

Here's an update of my chart of the GLD ...

(Updated chart)

Fed Chair Janet Yellin worsened gold's selloff with comments that were much more hawkish than the market expected.  However, gold has just come back to support. Thursday could be an important, but what really matters is how gold ends the week. Stay tuned

3 Important Charts on Oil and the Current Account Deficit

Here are three charts everyone should be aware of.

First, look at what happened to the current account deficit. Sure, it's still at $81.12 billion. But it's alsoat the lowest level in 14 years.
Source

In fact, the current account deficit has narrowed 20% in the past year alone!

Now, what has changed that could be causing that? Well, I've talked in previous posts about how U.S. crude oil production is booming. The fact is, The U.S. produced an average 7.455 million bpd in 2013 -- the highest since 1989. It was also the largest annual increase since 1859 - the start of US commercial oil production.

We can't use all of that oil. A lot is refined and turned into petroleum products for export. Let's hop on over to the Energy Information Administration and check out the latest chart of US petroleum exports ...

Here is the EIA data on that

Net petroleum imports fell last year to only 33% of oil consumed, the lowest dependence on foreign sources of petroleum since 1985.

And the more oil we produce, the less we need to import. So, here's a chart from the March Economic Report of the President ...


We are turning the tables on OPEC. And yes, the White House "all of the above" energy policy has a lot to do with it.

What about the Keystone Pipeline? That's a distraction -- it's mainly about oil company profits, because that would transport more oil to refineries on the coast to be turned into product for export. To be clear, this is not oil that is likely to be used here in the U.S. However, the more product that is produced and exported from those refineries, the lower our current account deficit is.

Just something to keep in mind.

Monday, March 17, 2014

GLD Chart Update


An update of an old favorite.


6 Important Stories on Gold

1. ETF Purchases of Gold Rise Again: There were purchases of gold into the SPDR gold ETF [GLD] of 3.297 tonnes but none into the iShares Gold Trust [IAU], on Friday, which left their respective holdings at 816.593 tonnes and 165.14 tonnes.

2. RBCCM sees gold rally ahead - similar to 2005-2008
Royal Bank of Canada Capital Markets analysts Dan Rollins in Toronto and Jonathan Guy in London have come up with a detailed analysis of the gold market over the next few years comparing it with the big ETF driven gold price rally of 2005-2008.Over that period, gold doubled in price from $450 to $900.

What they see as the huge, and sustainable, rise in gold purchases by China, which they reckon as replacing the surge in ETF purchases which drove prices after 2005 up until the 2012 crash.

Taking the net Hong Kong gold import figures alone, plus Chinese gold mine production, China appears to have absorbed just short of 1,600 tonnes of gold in 2013 alone – and the true figure is likely to be far higher given there are other routes for Chinese gold imports than just via Hong Kong.

Back in 2005, Chinese gold imports were negligible – so the difference here is enormous and is actually far bigger than the sales out of the ETFs. Read the rest

2. Speculators expect gold, wheat to get Ukraine price boost
Hedge fund managers are piling back in as the escalating crisis in Ukraine spurs a rebound in the prices of both commodities.

XX Sean's note -- this is actually a bearish force in the market, because the hedge funds will sell the minute the wind shifts.

3. Chinese Yuan Tumbles Again
The People's Bank of China widened the daily trading band around which the value of the Chinese yuan is allowed to deviate from the daily reference rate to 2% from 1%.
The announcement comes on the back of a PBoC-engineered weakening of the yuan (via lower reference rates) over the past several weeks — largely designed to shake out carry-trading speculators

XX Sean's note: A weakening of the yuan (or renminbi) means that gold prices are higher for people in China. This, along with other harbingers of inflation in China, makes them more likely to invest more money in gold. China also wants its people to own gold, long term. So unlike India, they won't discourage this investment in gold.

And let's in the fact that many of the wise sages of the market said that China's currency would appreciate as the government widened the band. Obviously that's not happening, so they're all caught on the wrong side of the market.



4. 2013 U.S. gold production down 128,602 oz - USGS
Also, 2013 worldwide gold production increased by 3% from 2,690 metric tons to 2,770 metric tons due to increases in production from Brazil, Canada, China, the Dominican Republic, and Russia, “which more than offset production decreases in Peru, Tanzania, South Africa, and the United States”. There are a lot of good stats in this story. Read the rest.

5. Bruised gold miners return tentatively to hedging
Increasing numbers of gold miners, battered by last year's drop in bullion prices, are selling planned output forward to help shore up their finances for stormy times.

XX Sean's comment: Obviously, many miners STILL don't believe the gold price rally is for real. You can't blame them after 3 years of a bear market, but it just shows that sentiment is awful, as I wrote about in a FreeMarketCafe.com piece about my recent trip to the Prospectors & Developers Association of Canada (PDAC), the world's biggest mining conference.

6. Gold Weaker as Market Place Takes in Stride Crimea Vote to Succeed
XX Sean's note: On Friday, I told Gold & Resource Trader subscribers to expect this -- as well as a rally in the broad stock market. So what do you do now? And what comes next? GRT subscribers know what I think. We'll be acting on it soon. Stay tuned, my friends.

Chart of US Crude Oil Production Growth Is Amazing

On Friday, the EIA released its latest "This Week in Petroleum," including final-year energy production figures for 2013. It includes this chart ...

From the report:
  • Total U.S. crude oil production averaged 7.5 million bbl/d in 2013, 967,000 barrels per day (bbl/d) higher than 2012 and the highest level of U.S. production since 1989. In December 2013, U.S. crude oil production reached 7.9 million barrels per day (bbl/d).
  • The 15% increase in U.S. production from 2012 to 2013 was the largest annual percentage increase since 1940. 
  • U.S. crude oil production gains were geographically concentrated in Texas and North Dakota, which together accounted for 83% of U.S. production growth. 
  • Net imports fell to 7.6 million bbl/d – the lowest level since 1996.
source 

In fact, US crude oil production grew by 50% between 2008 and 2013 (I did the calculations for a presentation I'm putting together for the big IU conference in Carlsbad). 

This record pumping happened even though the harsh winter curbed production in North Dakota and Montana.

You know who else is increasing crude oil production a lot last year? Iraq. Iraq pumped the most in 35 years. Meanwhile, the rest of OPEC is scrabbling to keep up.

Saturday, March 15, 2014

America's Huge Cost Advantage in Natural Gas

I'm putting together a presentation on natural gas for next weekend, and I am reminded just how cheap nat-gas is in the U.S. compared to other countries.

Source

Some points worth knowing ...


  • Even with the rally in U.S. natural gas prices in the past year, the price we pay is far, far below international prices.
  • Japan pays THREE TIMES what we do for natural gas.
  • The IMF forecasts that U.S. natural gas prices will not rise above $4.70 through 2018. They could be wrong. But even if our nat-gas prices DOUBLED, we’d still pay less than Europe!


Friday, March 14, 2014

Useful Chart of Monthly Price Movements in Gold

I'm not sure historical monthly movements in the price of gold matter anymore. There was a real disconnect in the fourth quarter of last year. Still, I want this chart for reference to compare this month's price action.

First, the trend in gold in US dollars ...

Then the action in gold priced in dollars and other currencies ...


We'll see how this month shapes up.

Wednesday, March 12, 2014

Gold Is Breaking Out -- Will Gold Miners Follow?

Gold is breaking out today. It's a safe-haven bid -- Treasuries are down in yield and up in price. The yellow metal brushed a session high of $1371.30. We'll need a few more days of closing above $1,360 to confirm it. It would also help if gold miners broke out. As of now, they're lagging. Take a look at the Market Vectors Junior Gold Miners (GDXJ) and you'll see what I mean ...
(Updated chart)

Looking at the chart, you can see that the Market Vectors Junior Gold Miners ETF (GDXJ consolidated since last month. Now, it has popped above that short-term downtrend. I’ve put a momentum indicator on the bottom of the chart called “MACD” – it shows that the short-term trend remains bearish.

The GDXJ could continue to break out. On the other hand, it could also head down to test support.  There are a number of support levels, but the one just above $38 is most obvious.

While GDXJ has lagged gold, I don't think it would move independently of gold.  Therefore, higher gold prices will likely push the GDXJ higher.  If gold goes lower, then maybe we'll see the GDXJ test that support.

A deeper pullback wouldn't be a bad development – it just means we'd get better prices on potential picks. 

And while the broad index is underperforming, there are individual stocks that are performing quite well. I recommended one of them this morning in Gold & Resource Trader.

Good luck and good trades, whatever you buy.

Tuesday, March 11, 2014

How Much Longer Will the Bull Market Run?

There's a lot of market analysis out there today; I want to group some of it one place.

First, Barron's says the "Bull Market Looks Good, But Beware Ides of March". And it includes two charts ...

Barrons used this chart to illustrate that "March has been the home to some important turning points during the past decade and a half."


And then Barrons used this next chart to show that "Last week's upside breakout is still in effect" and technically speaking, the market looks strong.

Read the whole Barrons article.

the Reformed Broker says that talk of the past five years being "easy money" is retarded. Some excerpts ...
What they’re saying now is that “It’s been easy money” over the last five years, and that “anyone could’ve made profits.” Forgive me, but this is complete and total bullshit.
 It’s been one of the hardest environments in market history. Never before have investors’ wounds been so raw. Never before have there been so many voices polluting the popular consciousness with half-baked conspiracy theories and calls for collapse.
In the last five years, investors have dealt with a non-functioning congress, a downgrade of the US Treasury, mass unemployment, exploding deficits, record debt, a possible dissolution of Europe and a slow-motion crash in China and the emerging markets – and that’s before we even get into any specifics. 
And not only have the threats been unprecedented, the amplification of them – thanks to the desperation of the mainstream media for attention coupled with the advent of a whole new chattering class on social media – has been like an orchestra of clanging pots and pans. If you’ve caught some or all of what the market has given us these last five years, you are a hero. 
Read the whole thing

Third, Bespoke Investment Group points out that The bull market is entering its sixth year, and is less than two weeks from taking out the 1982-1987 stretch to become the fifth longest of all time

Bespoke points out in another article that, while investors have turned more bullish, they are far from overly optimistic.

Finally, Bloomberg makes the case that the market is NOT overvalued ...

While the S&P 500’s multiple of 17 times reported earnings is close to the average since 1937, it’s about 40 percent below where it was in 2000, data compiled by Bloomberg and S&P show.
The lower valuation reflects faster earnings expansion. Profits for S&P 500 companies have climbed an average 21 percent a quarter since 2009, almost double the growth rate during the dot-com boom, according to data compiled by S&P.

Go read the whole Bloomberg article.

Certainly it's a mixed picture. For now, we're all keeping our eyes on China .


Good luck and good trades.

Minaurum Gold at PDAC 2014

Here's another video interview from the Prospectors & Developers Association of Canada -- Minaurum Gold (MGG on the TSX-V).  There are many Canada-based gold explorers, but it's a much smaller list that has a combination of A) money B) management with previous success and C) properties worth making deals over.  Minaurum has all three, as Sunny Pannu tells us ...



And here is a 3-year chart of the stock ...


(Updated chart)

Obviously, Minaurum remains in a big downtrend. However, it is testing that downtrend -- as many gold explorers are trying to break downtrends after three hard years. Can Minaurum break out to the upside? Stay tuned and see.

Minaurum is too small and too early stage for me to recommend to my Oxford Club subscribers. This is just a profile; not a recommendation; do your own due diligence before you buy anything.

Monday, March 10, 2014

We're In a Stock Pickers Market Now


Here's something interesting: stocks are no longer moving in tandem with the broad market



From the Wall Street Journal: "The 65-day average correlation of stocks fell to 0.52 in January. While the correlation briefly fell lower in 2011—to an average 0.51 in February—the measure rose to 0.84 later that year. A correlation of 1 would mean that all stocks traded exactly in lock step. From 2009 through the end of 2013, the correlation was an average 0.63."

My view: It's a sign of a maturing market; stock-pickers should do well. Index-buyers, not so much.
In fact, the current bull market is the strongest expansion since 1960

Gold Gives More Mixed Signals Than a Drive-Through Traffic School

Are these bullish or bearish times for gold? It depends on who you read.  

First one hard fact: SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, said its holdings rose 1.5 metric tonnes to 805.20 tonnes on Friday. It wasn't too long ago that that the GLD was well below 800 tonnes. The fact is, gold-backed ETFs are buying gold; a year ago, they were selling. That is a huge shift in the market.  

Beyond that fact, things get a bit murky.

For example, Reuters reports that gold dropped this morning due to a one-two-combo of strong U.S. jobs data (which eased worries of an economic slowdown) and the fact that China's export data unexpectedly tumbled, which increases worries of an economic slowdown in China. 

That doesn't make much sense, does it? In an interconnected world, China and the U.S. should more or less go in the same direction.

On the other hand, Bloomberg reports that hedge fund managers are the most bullish on gold and other commodities (particularly agricultural commodities, from my observation) since December of 2012. The 11% rally in gold since the start of the year certainly helps. The same story reports that Goldman Sachs sees gold slumping to $1,000 this year.  I guess by now, we all can guess that Goldman is in the market to buy cheap gold, right?

However, the China Gold Association says gold demand in China is poised to drop to 250 metric tonnes this quarter, down 17% from a year earlier. Higher prices are blamed. In the same reports, however, CGA expects total annual demand will rise to about 1,176 metric tonnes. Production in 2014 will match last year’s output of 428.16 tonnes.  

Another wild card -- also from China -- is that Chaori Solar Energy Science & Technology Co., a manufacturer of solar panels, has defaulted on a bond.  This is the first time the Chinese government hasn't stepped in to backstop company bonds.  This default ratchets up the fear trade, in my view.

And the ongoing crisis is Ukraine is sending shockwaves through gold, energy, grains and more. "When uncertainty and even downright panic grips other parts of global financial markets, the tried and true reflex is to buy gold. "

Obviously, gold is giving off more mixed signals than a drive-through traffic school.

Other Commodities & Markets

So there's no inflation, eh? Here's a jaw-dropping chart ...



 Check out the countries with +25% food inflation since 2007.  Russia and Brazil have seen food prices rise more than 50%.  India has seen food prices rise more than 75%. This is how we get to The Boiling Point, my friends.

The EIA reports that Natural Gas output from Marcellus—spread over Pennsylvanian and West Virginia—crossed the 13 Bcf/d mark in late 2013, compared with just over 2 Bcf/d four years ago.

And yet, stockpiles of natural gas and coal are expected to decline to six-year lows by the end of this month, government data show. You can blame that on frigid weather.

The World Bank raised its 2014 growth forecasts for advanced nations in January to 2.2% from 2%, while cutting its estimates for developing nations to 5.3% from 5.6%.

At the same time, China last week retained a target for 7.5% growth in 2014 for the $9 trillion economy. Gross domestic product expanded 7.7% in 2013, the same pace as in 2012. But China's CSI 300 Index plunged to its lowest level in five years, which is hardly a vote of confidence.

Another no-confidence vote comes from copper. Remember my story from February 6, "Doctor Copper Delivers a Warning to the World"? Well, today the price of the metal fell to its lowest level in four years.  Copper is called Doctor Copper because it tells you the health of the global economy. China accounts for 40% of global copper demand.

Friday, March 7, 2014

A Funny Thing Happened on the Way to the Gold Rally

Here is the original version of my story which ran in FreeMarketCafe.com's Daily Grind today.

I’m writing from the Pessimists and Downers Association of Canada – excuse me, the Prospectors and Developers Association of Canada (PDAC), the world’s biggest mining conference. Never before have I been in a group of people sitting on literal gold mines and yet so down in the mouth at the same time.

In a way, we can’t blame them. The action in gold mining stocks played out as absolute carnage for nearly three years. And it seemed every time the miners stuck their heads out of their holes to sniff the air, they’d get whacked on the heads with a stick. Being the mole in a game of Whack-a-Mole will make anybody bitter and jumpy.

Finally, gold and gold miners have started to rally. Gold is up 12% so far this year… and the Market Vectors Gold Miners ETF of gold stocks is up twice as much! But you wouldn’t know the good news from the mood at PDAC.

As I walk through the PDAC this year, held in Toronto, which is deep in winter’s icy grip, I find it fitting that the standard uniform for Canadian business is a black suit with a black overcoat. Many (not all) of these guys are acting like they’re in mourning for something… maybe for the better days of Canadian mining.

And it’s not just a mood, it’s statistical.   Jeffrey Christian of CPM Group pointed out that a third of the gold project development that was scheduled in the early part of 2013 has now been deferred.


Source: CPM Group/Jeffrey Christian

 And if you’re wondering about silver projects, we’re seeing the same thing in that space. Low prices for too long means one project after another has been shelved.

That’s pessimism.

Well I have news for the mourners in black overcoats: better days lie ahead. And I believe they’re coming sooner than you think.

I mean the thing about miners, engineers and geologists is that they hate to sit idle. So as the prices of gold and silver came down, mining companies cut costs to the bone. They redesigned their projects and turned over every rock to find a dollar. Sure, some companies went belly-up. But that just meant that other companies got to pick up great projects for a song.

So we have low-cost miners and developers that picked up projects on the cheap, run by guys who know how to squeeze a dollar until it screams. The best ones not only are going to make money, they’re going to make a LOT of money. All they need is for the price of gold to go up… some.

It looks like they’re starting to get their wish. Gold has rallied sharply since mid-December. And look at the effect that rally has had on junior miners, as tracked by the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ)…
You can see that junior miners finally broke out of their kamikaze dive. And they’re rallying on bigger-than-usual volume. That sure looks like a turn in sentiment to me.

Someone who definitely understands the positive reality underlying all the doom and gloom is Rick Rule, chairman of Sprott U.S. Holdings.

“Bear markets are like sales,” Mr. Rule told a packed room at PDAC. And since junior miners as a group were down 75% from their peaks, it was like “the market is 75% less risky.”

“You’ve been here through the pain,” Mr. Rule added. “Why not stick around for the gain?”

Now, I should say that both Rick Rule and Jeffrey Christian believe we’ll see lower gold prices before we see higher gold prices. Maybe they’re right.

On the other hand, I’m finding a nice collection of miners who make money at current gold prices… and will make a heck of a lot more money at higher gold prices. 

After all, you've got miners producing rocks like this ...


That’s me with an ore sample from a little-known miner.  See all that yellow in the rock? That’s gold.  This is a company mining big, thick visible gold.  And that’s just one target – they have other targets close by.  Don’t tell me they can’t make money – they ARE making money. And yet, because this company is in an industry that is hated (for the time being), this stock is trading for pennies. For the time being.

Maybe prices will go a bit lower. But I don’t think investors should worry too much about catching the exact bottom. There’s just too much potential upside to risk missing the move.

After all, the Chinese are buying gold hand over fist. The world’s central banks keep accumulating gold, even as they pooh-pooh it for the general public. India is likely to lift its restrictions on gold imports sooner rather than later, unleashing a flood of pent-up demand. And ETFs are buying gold again and it was ETF selling last year that hammered gold prices into the pit.

So to my gloomy friends in Canada, I’ll put it in terms you can understand. In the words of the great Canadian rock band Barenaked Ladies:

“Odds are we’re gonna be alright.

Sure things go wrong, but I’ll take my chances

Odds are long, so why not play?”

I’m coming back from Canada with new recommendations for my subscribers. If the market is 75% de-risked, as Rick Rule says, and I agree with him on that, then I’d say the odds are these stocks are going to do all right.

In fact, I’d say the bigger risk is doing nothing. Sitting on your hands could cost you a lot of money.

Sure, things go wrong. But I’ll take my chances.

Whatever you do, good luck and good trades,

Sean Brodrick

Thursday, March 6, 2014

2 Great Gold Charts from New US Global Report

Here are two charts from the new US Global Investors report that I found interesting ...

First, here's a chart showing dividend payers in the gold space ...


Remember, the 5-year Treasury yield is currently 1.74% (marked on the chart). 

And here's a chart of inflation expectations ...

For more on inflation and what it could mean for gold, read my story in FreeMarketCafe's Daily Grind, "The Inflation Drought Is Over."

To read the whole US Funds report, CLICK HERE.