Thursday, August 16, 2007

Reckless Abandon

In the U.S., a new forecast suggested Tropical Storm Dean could pass to the south of the Gulf of Mexico, missing the region entirely or returning much diminished in strength.

Traders had worried that Dean, bearing down on the Caribbean from the central Atlantic, could damage oil and gas infrastructure in the Gulf, cutting supplies. Dean is expected to become a hurricane on Thursday.

"The storm is on a projection for a path to stay pretty much south, there's less likely to be great damage, so it's seen as less of a threat to markets," said Tobin Gorey, a commodities strategist at the Commonwealth Bank of Australia in Sydney.

What does a commodities hack from Australia know about Atlantic Hurricanes? Dean won't even enter the Gulf until Monday at the earliest. Hurricanes have minds of their own and seldom follow the "projected path". I will suggest that by Next Tuesday they will tripping over themselves to buy Oil contracts. And I will boldly predict that Hurricane Dean will smash Galveston Texas.

The storm concerns on Wednesday overshadowed a U.S. weekly government report that showed larger-than-expected declines in oil and gasoline inventories last week, but an increase in refinery activity that was in line with expectations. The decline in crude inventories supported higher oil prices, though the rest of the report was viewed as largely neutral, analysts said.

In its inventory report, the Energy Information Administration said refinery utilization rose 0.5 percentage points to 91.8 percent of capacity in the week ended Aug. 10, in line with the expectations of analysts surveyed by Dow Jones Newswires. Refinery utilization fell by a surprise 2.3 percentage points the previous week.

Crude oil inventories fell 5.2 million barrels last week, the EIA said, and gasoline inventories dropped 1.1 million barrels. Analysts had expected crude stockpiles to fall 2.1 million barrels and gasoline inventories to fall 400,000 barrels.

Supply and Demand. That's the bottom line for all commodities. Unfortunately Gold and Silver have been lumped into the commodities arena. Too "risky" to hold in these ever increasingly inflationary times, both Gold, and particularly Silver, are getting bashed around in the markets by fools that have lost the monetary respect for them.

Gold demand surged in Q2, recent market turmoil to underpin price - WGC
LONDON (Thomson Financial) - Reduced price volatility and robust Indian buying lifted global gold demand in the second quarter, said the World Gold Council.

In an interview with Thomson Financial News, Jill Leyland, the Council's economic advisor also said current worldwide financial turmoil will serve to underpin prices further as investors rush into safe haven assets, like gold.

Global demand in tonnage terms, which refers to physical buying, rose 19 pct to 922 tonnes in the April to June months compared with the same period a a year ago. Demand from India, the world's biggest physical market, accounted for 317 tonnes of the total amount.

In recent weeks broader financial markets have collapsed largely because of defaults in the US sub-prime mortgage lending sector and on fears of a credit crunch. Gold was one of the first commodities to fall as players sold the metal off in a bid to raise cash to cover losses elsewhere. Investment into the metal as a safe haven asset caught gold's fall, however.

'A lot of people misunderstand gold as a safe haven and expect it to react immediately,' Leyland at the WGC told Thomson Financial News. 'It's more of an insurance people buy when they are worried.'

Prices are currently hovering around 665 usd and, while lower than the near 700 usd level gold has flirted with several times this year, they remain well supported by safe haven investment flows.

'You don't get an immediate response because people will be running to cash in, the gold price has been jerked around a bit but it's pretty stable,' said Leyland.

Other experts agree, with UBS (nyse: UBS - news - people )' John Reade just this morning noting that 'the longer this credit crunch goes on, the more likely that gold will attract safe haven buying,' adding he expects the credit crunch to continue.

On the physical side, seasonal demand is expected to pick up in the fourth quarter, after the summer lull and amid Christmas, Diwali and Eid festivals which could spur buying.

And that's the bottom line. Gold and Silver may not look pretty today, but they're likely to be the Belles of the Ball come Fall. It goes beyond frustration to watch the action in the Precious Metals as this sub-prime contagion infects the World's financial Markets. All "should be" rising rapidly. The fact that they are not perhaps is an indication of just how truly serious this financial crisis is. If people are forced to sell their Gold to raise cash, as many have suggested, then things must be really be in a lot worse than we are being led to believe by the media. But for every seller there is a buyer. You can be sure a few Indians are lined up to buy as you read this.

Yesterdays CPI numbers were a hoot. Anybody that believes them probably lives in a cave. One number that got lost in the maelstrom of bad news yesterday was the TIC report. The monthly TIC net flows decreased to $58.8 billion in June, down from $107.3 billion in May. This is significant because the June Trade balance was -$58.14 billion. Uncle Sam was able to keep his checkbook in the black by ONLY $660 million. The TIC [Treasury International Capital] report measures the flow of money out of the US vs. the flow of the money in. When the money coming in falls short of the money going out, Uncle Sam has Insufficient Funds in his account, and he can't pay his bills. Of course, I guess with his connections he could just print up some, but I think you get the picture...Interest in investing in America is on the wane. And in light of this credit crisis that was manufactured on Wall Street and endorsed by the Federal Reserve, I doubt many foreign investors are going to be rushing to Uncle Sam's Bank to make a deposit in the future.

Gold and especially Silver are looking ugly at this hour. The Yen is on one hell of a banshee train run up right now. I like many of you am a bit dismayed at all this, but remain resolute in my belief that everything occurring now is ultimately going to make Gold the overlord of all currencies. This mega move up in the Yen is definitely causing a lot of selling in Gold, just as a mega move up in the Dollar would here. This is why Gold has been weak overnight the past two nights. The Japanese have been selling as the Yen has risen. The Dollar looks particularly weak against the Yen today as it has come back down some over night. If this drift in the Dollar continues into the trading day today, perhaps this slide in the Precious Metals will abate. Predictions now would be foolish. We must let the chips fall where they may. You're either in, or you're out. I'm in 'till they throw me out kicking and screaming.

No comments:

Post a Comment