Friday, February 22, 2008

The Prudent Investor invites everybody to the biggest party of the world.
Join a crowd of approximately 300 million Indians, probably 400 million Chinese, a few million Arabs from the oil sheikdoms, those Africans with more than a dime to spare and maybe spot a few ten thousand Western investors at the gold party too!
Attendees meet from Sunday to Friday at local office hours and can be easily recognized by the smile on their faces.
Thanks to the latest technology you can participate virtually too. You don't even have to leave your home for the best party that will probably last well into the next decade.
Meet the lucky few who bought their tickets early. The entry fee for the hottest party in the world has steadily risen from $252 at the beginning of this millennium and a rapidly expanding crowd is now happy to fork over $950 for their ticket to prosperity.
Great sounds of bling, bling, bling (accompanied by the tune of your choice) are attracting new partygoers everyday and scalpers hold back their tickets as they expect such strong demand that they expect to unload well north of $1,000 in the very near future, with the high expectations for the 2008 party ranging between $1,200 and $1,500.
Participants are truly getting value for their money. Every ticket will immediately turn into a treasured asset that is nobody else's obligation. And they literally last forever, without losing the shine for millenia.
Follow-up events are planned for 2009, 2010, 2011, 2012, 2013 and 2014 so far, taking it from the success of past parties that were organized in the 1970s. Expect ticket prices to rise sharply, though. Those who have already been to the golden venue are eagerly spreading word about the fantastic atmosphere.
Dancers shake their booty while engaging in the "avoid inflation" game.
Win a gold bar by correctly forecasting this year's percentage growth in money supply. Get one ounce for every percentage point of money supply M3 (ssshh: you could become a winner with a figure around 18%.)
Others enjoy lessons in biology in the chill-out room: You ever heard of the growing strength of goldbugs who are well prepared to such hostile environments like debt crises, recession and depression?
So what are you waiting for?
Come to the best party of the world! It is only getting fun now!

How Come Only Gold and Silver Miss the Commodity Rocket?

Tuesday, February 19, 2008

-- UPDATED -- Not that I have an answer; but it is quite astounding that gold and silver are the only commodities that lag in the current commodity rally since mid 2007. While platinum's rise exceeds the expectations of the most bullish precious metals investors and has been followed by recent massive gains in palladium, gold and silver are the only exchange traded commodities that have not yet risen to new highs.
Silver is still far off its 1980 nominal high of more than $50/oz and gold has not seen the old real-term high that lies somewhere between $2,100 and $3,000/oz, depending on which inflation statistics you use.

GS Commodity Indices

GRAPH: Goldman Sachs Commodity Indices. The commodity rocket took off in mid 2007. All commodities? No! Gold and silver are the only two major exchange traded commodities (meat is weak too) that have not yet shot back to their inflation-adjusted alltime highs. I would categorize it with John Maynard Keynes quote that markets can remain irrational far longer than investors can remain solvent. Take back your leverage and fasten your seat belts for the coming catch-up process in gold and silver. Agricultural products have been outpacing all other commodity sectors and are expected to continue this trend. Coffee is below its old records too. Chart courtesy of
Don't get desparate, though. Christmas is still lasting for gold/silver bulls as the current underperformance will probably be the last chance to accumulate more of the metals at prices that will be called ridiculously low in hindsight.
Platinum and palladium rally because of energy shortages in South Africa. Mines sometimes have barely enough energy to maintain their operations, not to speak of actual mining. This applies to gold mines as well! South Africa's gold production may fall off the cliff and gold still trades sideways above $900!
Yes, this is christmas for all late-comers to the gold bull. 
Check out commodity charts. Almost all foods trade at or near their alltime highs.
A recent slump in base metals has given way to the more realistic view that China will build some 200 million apartments until 2020. Multiply 250 pounds of copper with 200 million and see yourself why the commodities bull will last longer.
Thinking oil prices are too high? Think again!
In China's northeast gas stations are guarded by police and sales rationed to 5 gallons per car. And yet there are several 100 million Chinese and Indian who have no bigger wish than their own individual means of transport!
Meats are the only significant exception in the current commodities boom. This is due to massively higher costs for raising the livestock. But as Chinese switch to a diet with more meat some killings may be made with cattle and hogs. Right now meat producers experience the worst of two worlds. Higher input prices and lower sales prices will lead to sharp moves in futures markets.
China has a huge impact on the gold market too. Gold demand rose 26% to 326 tons in 2007 YOY, outpacing a 12% rise in domestic production to 276 tons, leaving a deficit of 50 metric tons. China is now the biggest gold producer in the world but don't expect any production surplus from there anytime soon.
One last note: We have seen almost all commodities having their limit-up days. While both gold and silver display extreme intraday volatilities they have never seen a limit-up day in the past 28 years. Taking a cue from other commodities this is a sign that these markets are nowhere near overheating anytime soon. Gold and silver still have to do a lot of fundamental catch-up as Western investors have yet to begin to buy the physical stuff. Euphoria will only set in around $2,500. To know what it will feel like, read this story on the wild, wild days in wheat futures markets that took place last week.

Iranian Oil Bourse Started Trading Today, Will Also Accept Roubles

Monday, February 18, 2008

Follow up to the most-read post of this blog. The Iranian Oil Bourse (IOB) began trading today, according to media reports, most of them Arab sources. This is almost a year later than originally planned.
The first day of trading saw turnover of 100 tons polyethylene. Iran produces 22 million tons petrochemicals annually and claims to be the #2 producer behind Saudi Arabia. 
Oil Minister Gholam Hossein Nozari said that trading in crude oil will come at a later stage with no specific date set yet. 
"The first phase should operate for a while and we should find out its strong and weak points in order to open the second phase. Because the second phase is more complicated," Nozari said.

No Dollars Please, We Are Iranian
The IOB accepts Iranian Rials and a host of other currencies including Russian roubles, but no Federal Reserve Notes (FRN's.) Iran has shifted all its assets out of FRN obligations in order to avoid an arbitrary confiscation by the USA.
Iran's first domestic toehold in oil trading is another blow to the ailing unbacked dollar. As more oil gets traded in other currencies, the demand for FRN's will further reduce. 
The USA anxiously follows these developments that could easily spread to other commodities as well, again reducing the demand for dollars as a hitherto unchallenged currency of choice in commodities markets. 
There is no sound reason why Euro countries will not prefer to settle their oil bills in their own currency, eliminating forex costs too.
OPEC has declared earlier that it too is looking into other options. OPEC mulls to replace FRN's with a basket of currencies.
The Iranian initiative opens up other scary perspectives. What if Russia and Iran team up and demand Roubles and Rial only for their energy deliveries to the West? 
The Rouble has quietly become a hard currency. Russia’s gold and foreign currency reserves stood at a record $481 billion as of last week. That is about half of Japan's forex reserves.
Find more background on the Iranian Oil Bourse herehere, and here. The first post has been read more than 50,000 times here and been reposted on more than 130 websites.

Economic Outlook Supports Conservative Investment Strategy

Thursday, February 14, 2008

Lazy blogging can continue as the fundamentals have not changed since my last post as there are:
  • US deficits continue to explode
  • Banking woes mount
  • Coming deflation of paper debt
  • Consumers' excessive debt levels are nowhere near a change of trend
  • Real estate deflates on a global scale
  • Central banks create fiat money as never before and promise more of the same
  • Inflation in commodities and energy remains at record levels
  • After the housing bust the economy will slow further by the corporate credit crunch
  • Continuing growth in OTC derivatives which now amount to 13 times of global GDP of $50 trillion

Gold Feb 2003/2008

This blog has been favoriting gold and silver since 2005. Gold has climbed 112% or $476 and silver did even better, advancing 145% or $10 since the first post.  A good performance by simply investing in an inflation-proof currency that has never lost its value in 3,500 years.

Given the main fundamentals above I have no reason to change my view that all paper assets will continue to decline in value relative to gold, as it was always the case after periods of credit excesses. Silver may even perform better as it is one of the very few commodities that do not yet again trade at record levels. Silver had spiked to $50 in the short squeeze in 1980. This is a high that will certainly be taken out once gold/silver end their under performance relative to all other commodities in this millennium's first commodity boom.
Gold used to trade more or less in tandem with platinum till the mid-90s. Well, platinum currently scratches the $2,000 mark and where is gold? This under performance will not last forever and the longer it lasts, the stronger the following break out.
While there is always the possibility of a painful correction I forecast gold's trading range between $850 - the old high currently morphs into a massive support - on the downside and $1,500 on the upside for this year.
For silver I see a 2008 trading range between $15 and $25 with maybe even more room to the upside.
It will depend on the strength of the upmove and which new fundamental factors - like bankruptcies and defaults - will support the next long up-leg.Gold now also rises against the Euro. The formerly strong inverse correlation of FRN's and gold has become less reliable as investors begin to look for a way out of all unbacked fiat currencies. 3,500 years of history show it clearly. So far Western investors have shunned the physical market which is dominated by Asian savers. This will change too, giving rise to even more real demand as only bullion is not just another kind of obligation.
I notice one more change in attitude: These days all bad news correctly lead to precious metals strength. We will have no shortage in such.
Other than precious metals I have a growing interest in all other commodities, focusing on the food sector. Read some interesting insights from Deutsche Bank research on China's growing demand for higher quality nutrition here.

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