Sunday, November 30, 2008

As Panic Turns To Fear


As we suggested last week, Gold may need to consolidate, and in fact has been consolidating recent gains. A nice pennant consolidation has formed here in Gold since 24 November. A break above 819 has the potential to push Gold through resistance now holding firm between 828 and 835. A break of this zone of resistance sets up a move to 872 and a battle royal for the near term future of Gold. A failure to break resistance at 835 may see Gold revisit the 770s before attempting another breach of 835. Silver will continue to follow in the shadow of big brother Gold. A significant move higher in the price of Oil may accelerate Silver's bid. Geopolitical risk, and it's effect on Gold prices, has been renewed with the carnage last week in India.

Gold rises; monthly gain biggest since 1999
NEW YORK (MarketWatch) -- Gold futures edged higher Friday in light trading following the Thanksgiving Day holiday, rising for a fourth straight week and ending the month with their biggest monthly gain in nine years.

Gold for December delivery rose $7.70, or 1%, to close at $816.20 an ounce on the Comex division of the New York Mercantile Exchange. It rose 3.1% this week. In the month, gold advanced 14%, the biggest percentage gain since September 1999.

November's gain followed gold's slump in the previous month. The metal fell 18% in October, the biggest monthly loss since February, 1983.

Gold rose "on safe-haven demand and on the likelihood of further dollar declines with further reductions in U.S. and international interest rates," said Mark O'Byrne, executive director at Gold and Silver Investments.
http://www.marketwatch.com/news/story/gold-rises-poised-biggest-monthly/story.aspx?guid=%7B86C32DA3-100C-443C-BD4D-6F89264107B0%7D

OPEC delays decision on cutting oil production
Reporting from Cairo -- Ministers from OPEC countries decided Saturday to delay until December a decision on cutting production to stem the fall of crude oil prices that have tumbled by more than 60% in recent months.

King Abdullah of Saudi Arabia, the leading producer in the Organization of the Petroleum Exporting Countries, was quoted by a Kuwaiti newspaper as saying that $75 a barrel was a "fair price."

The Saudis want to see prices rise by at least $20 a barrel. Saudi Oil Minister Ali Ibrahim Naimi told reporters that OPEC would "do what needs to be done" to bolster prices.

"There is a good logic for $75 a barrel," he said. "You know why? Because I believe $75 is the price for the marginal producer. If the world needs supply from all sources, we need to protect the price for them. I think $75 is a fair price."

Qatar's oil minister, Abdullah bin Hamad Attiyah, told the Arab TV news channel Al Arabiya that sinking revenues would damage the oil industry's future, saying that if prices linger below $70 a barrel, "investment would freeze, which would lead to a crisis in supply in the future."
http://www.latimes.com/news/nationworld/world/la-fg-opec30-2008nov30,0,2258218.story

Why This Crisis Will Send Inflation Soaring
The US financial crisis has now spread across the globe. Years of easy credit created massive asset bubbles in the housing and financial services sectors. As bond fund manager Bill Gross points out, there was “too much exuberant leverage, not enough regulation; too strong a belief in asset-based prosperity, too little common sense that prices could go down as well as up; excessive “me first” greed, too little concern for the burden of future generations.”

Many advisors still recommend holding for the long term and suggest that investors “ride out the storm.” This may eventually work for very young investors but may prove to be a poor strategy for everyone else. Bull and bear markets tend to move in cycles lasting for about 20 years. The Dow’s 1929 peak was not surpassed until 1953 (24 years later), the Dow’s 1968 peak was not surpassed until 1982 (14 years later) and the Japanese NIKKEI is down 80% from its peak of 44,000 in 1989. As of this writing, the Dow is at the same level that it was at the beginning of 1999 and the storm has only just begun. When inflation is taken into account, the length of time to break even becomes significantly longer. The current crisis is about to send inflation soaring, wreaking havoc on even the most conservative investor’s portfolio.

As defaults and foreclosures intensify and house prices continue to decline, the recession will get worse and the credit crisis will be amplified by the $1.2 quadrillion of derivatives that have been created. This will require increasingly larger government rescue and bailout attempts. What’s worse, this influx of money is certain to have unintended consequences that are both long-term and very damaging. Although trillions of dollars in bailouts have already been issued, they will take time to work through the system, and lawmakers and economists admit there is no guarantee that they will work. Currently, we are in the midst of a liquidity crisis brought on by the bursting of two asset bubbles. But the real danger is that the liquidity issue could become a full-blown insolvency crisis if credit is not made available in time to re-liquefy the system.

Over the past few months the US Fed and most other central banks have been increasing money supply by ever-higher amounts in order to fund the various bailouts. TARP, the most recent US bailout at the time this article was written, will cost taxpayers $850 billion. When all of this year’s bailouts are taken into account, they already total $1.45 trillion (see Figure 1) and some pundits are estimating that the total may eventually reach $5 trillion. In addition, on October 13 Europe created a $2.3 trillion bailout package to protect the continent's banks.
http://news.goldseek.com/GoldSeek/1228057500.php

Is The End Of The COMEX Nigh?
The war over gold and silver rages on, with its center stage as always at the NY COMEX futures exchange, often referred to affectionately as the “CRIMEX”. Myself and other metal market observers, most notably Jim Sinclair, Marc Faber, Eric Sprott, and Bill Murphy, have painstakingly watched this horror show play out over the past decade, under the guise of the U.S. “Strong Dollar Policy”, the ultimate oxymoron and falsehood.

We and others have discussed at length the incredibly positive fundamentals for both gold and silver, and by now it should be clear to all that supply for both are PLUMMETING while demand is EXPLODING. And there’s a reason why I’ve capped these words, as I cannot underestimate how powerful these forces have become, and how much strength they gain each day. Aside from the sharp increase in demand, depicted in last week’s World Gold Council quarterly report and by the fact that the Perth Mint, one of the world’s largest, is not accepting any more orders, supply is completely collapsing in nearly all markets.

But, once again, the key to this story is NOT the dollar, NOT other commodities, NOT the credit crisis, and NOT even gold’s supply/demand balance. It is one thing, and one thing alone; the ability of the gold/silver Cartel to surreptitiously (and in many cases illegally) sate the soaring physical demand. Clearly, they are losing the battle of the physical markets, given global shortages, record demand, and record premiums being paid over spot prices. Not to mention that gold is hitting new record highs in nearly all global currencies outside the yen and the dollar, the two currencies that have benefitted the most from the deleveraging (NOT safe haven buying) going on over the past two months.


But the WAR is fought in the NY COMEX market from 8:20 am to 1:30 pm EST each day, as that is where essentially ALL of gold and silver’s losses occur. Amazingly, throughout this nearly nine-year bull market, gold has declined far more than it has risen in New York, and last I read it had fallen in something like 93% of this year’s trading sessions despite being down just 2% this year. And, by the way, that 2% decline has outperformed essentially every asset on earth, not just this year but for seven straight years, soon to be eight!

Anyone wonder why in today’s massive “reflation” trade, in which copper, oil, and stocks all rose sharply, somehow the ONLY asset to decline was gold, which by definition is the asset class of choice if one is betting on “reflation” (read: inflation)? I think you know the answer, an answer which once again was given between 8:20 am and 1:30 pm EST in the NY COMEX futures market.

But the COMEX’s days of setting global gold and silver prices appears to be nearing its end (in itself a ridiculous concept, given that such a tiny percentage of futures traders have anything to do with the business of gold and silver production). As I have been noting for some time now, COMEX open interest, or the number of outstanding contracts, has been plummeting for both metals all year. Consequently, open interest for both gold and silver are currently at multi-year lows amidst the greatest financial crisis in a century.

http://news.goldseek.com/GoldSeek/1228061100.php

Why Gold
In order to understand why gold is so important now you must realize that the very concept of what is money is fluid. Since the early 80s, up until quite recently, the following were regarded as money or a proxy for money: blue chip stocks, quality real estate, quality corporate bonds. Two years ago, collaterized low quality loans were even considered money.

Ultimately fear determines what is money and what is not. We have been living in a low fear environment, obviously that is changing now.

There are two types of fear:

1) Fear of economic collapse - You will hear this expressed as a fear of deflation, but from a monetary perspective, this is a fear of loss due to insolvency, lower earnings, inability to service debt. This can be caused by over extension of credit, fraud, corruption or a combination of all of the above, which is what we are experiencing now.

2) Fear of fiat currency collapse - You will hear this expressed as hyperinflation. It is a self-reinforcing loss of confidence in the value of fiat currency.

We are being crushed between these two types of fear. There are no sound fiat currencies in which to seek shelter. This is the ultimate setup for gold and silver bullion.
http://news.goldseek.com/GoldSeek/1228115040.php

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