Commodity Daily – A World of Possibilities The Commodity World is Growing i…

The Commodity World is Growing in Strength

Mary Anne & Pamela Aden

The Aden Sisters

The commodity market is bub bling. Whether it be sugar reaching a three year high, copper and other base metals reaching almost one year highs, or oil and gold rising further. The markets are looking good.

They’re moving up on signs that the global recession is easing. This is boosting demand, especially in China and Asia, which is pushing prices up.

TANGIBLES ARE "IN"

Tangibles are growing in strength. From the metals, natural resources, energy and food, these markets are rebounding strongly and they’re poised to continue rising in the years ahead. Demand is the driving force, making commodities a power ful market.

The Chinese are astute investors. They’re buying up lots of hard assets and commodities for infrastructure, and they’re using their dollar re serves to buy these goods.

The world is on sale and China is the main buyer. The Chinese have already been focusing on re source rich developing countries, and less on monetary investments. They’re using their reserves to sup port and speed up overseas expan sion and acquisitions by Chinese companies.

This is a growing tendency, and it’s not just China. Other countries are doing the same to lock in natu ral resources for the future.

China’s economy is showing impressive strength, boost ing raw materials’ consumption even more. Top Chinese officials have been commenting about this in recent weeks.

A research chief, for example, said China should buy gold and U.S. real estate instead of Treasur ies. Another top economic official said China should use more of its $2 trillion reserves to buy energy and natural resources. He also be lieves their 2% gold reserve is too small, even though China has al ready increased their gold reserves about 75% over the last five years.

COPPER: Almost one year high

With this kind of de mand, it’s not surprising to see the base metals rising from major low areas with some like zinc, lead and nickel reaching 10 month highs. Plus, copper jumped up further this month, turning clearly bullish along the way (see Chart 1). The same is true of oil.

ASSET CLASSES STILL MOVING TO GETHER

The more it looks like the financial crisis and global recession is over, the more this pushes up commodities, stocks and currencies. They are all rising for the same reason, which is understandable, but keep in mind that this is not normal.

Commodities and the stock market don’t usually move together and at some point they will go their separate ways. When this will happen and what will trigger it remains to be seen but it’s something we have to keep a close eye on. Most important is to understand why each market is rising in the first place.

For commodities, its demand together with a weak dollar which is very bullish. For stocks, it’s op timism for a better economy, but inflation would eventually kill the rise. For currencies, it’s the weak dollar, and also the commodity rise for the commodity currencies. For bonds, it’s the financial health of the global economy and inflation.

The world is slowly moving to wards tangibles and away from financials. The ongoing commodity bull market is eight years old and considering that commodity bull markets over the past 100 years have lasted on average 17 years, the current bull-run could go on for another decade. And the long-term leading indicators for oil, copper and the base metals are all reinforcing this.

GOLD: THE SPECIAL ONE

As for gold, its main purpose is money. Gold is the ultimate cur rency, it’s a safe haven and it thrives during economic uncertainty. Gold and commodities tend to move together in a general wave but it will outperform or underperform the other metals and commodities at times.

China is on the mend and its plans to add more gold to its re serves is very bullish for gold. China could easily overtake India in gold consumption this year, especially since it’s the first nation to rebound from the global recession. China’s GDP recently rose to 7.9% as the massive stimulus plan and record bank lending began to take effect.

Gold’s big picture is bullish as you can see on Chart 2. The mega trend is up and the bull market rise since 2001 is turning 8½ years old this month. This is im portant because the eight year mark has been a key low point for gold going back to the 1960s when gold began trading in the free market.

THE TIME FOR TRUTH

Chart 2 shows that this pattern has repeated four times since 1969 and the fifth low is now on the longer side of the normal time span. This low period can vary from 7 to 8½ years, fol­lowing the previous low, which means that, if gold stays above last November’s low, then that $705 low was the low for this time around. This would make it a 7 year 10 month low fol lowing the previous February 2001 low… just three months shy of the 8 year mark. We’d say that’s pretty close.

So if the 8 year pattern re peats, and we believe it will, then current prices are still at good levels for buying new positions. We should have all of our positions bought this month because come the Fall, we could really see gold take off.

TIMING GOLD

Chart 3 shows a closer look at gold’s intermediate moves and as you can see, gold has been forming a springboard for upcoming higher prices. As our subscribers know, gold moves in an A-D pattern on an intermedi ate basis. D declines tend to be the worst decline and gold reached the last D low in November.

It then rose from those lows in a moderate rise we call "A" which peaked last February. This is when the springboard began as gold de clined from that high to form a mod erate "B" low last April at $868.

Since then, a C rise has begun. It’s been quietly forming a coil and gold looks ready to take off. Gold’s been rising this past month and it’s strong above $935. It reached a nine week high and it would be very strong above $985. A super strong C rise would be underway above $1004, the record high.

Keep in mind, C rises tend to be the best rise in the pattern. By hitting a new record high, gold would confirm that the bull mar ket is entering an even stronger phase and it could then rise to near $1200. It would also confirm that the 8 year low indeed happened last November.

Since November, gold’s been posting higher lows which is also positive action. For now, if gold stays clearly above the July 8 low at $909, it’ll be reinforcing its strong uptrend since November and all systems will continue to be go!

Commodity Daily – A World of Possibilities The Gold/Silver Ratio

The Gold/Silver Ratio

The Gold/Silver Ratio August 14, 2009 The following is an interview I did recently discussing the gold/silver ratio. This topic seems to surface from time to time and Tom Jeffries and I explored it together. Tom Jeffries: David Morgan is one of the world’s foremost experts on silver. I would like you to check in with David’s excellent Web site, silver-investor.com. That’s where you can check out David’s monthly investment newsletter, The Morgan Report (full disclosure: I read it every month myself). And there is a ton of excellent resources for the investor of all stripes. You talk many times in your lectures, and you’ve talked in The Morgan Report recently, about something called the gold/silver ratio and where it’s going. Can you talk a little bit about that? David Morgan: It is a controversial subject. There are a lot of people who don’t put any credence into it at all, there are some people who put a whole lot of credence into it, and then there are people, like me, who absolutely put some credence into the ratio. The basics of it are this—and I like to go for the long-term version, so—starting at the 12thcentury or so and going to present time, if you looked at every one foot in length being 100 years (or one century), you would see throughout the entire timeframe that you would have several feet in length and it would only be in the last 19 inches of that chart where the ratio got above 16 to 1. (Note: a discussion of this is done by Franklin Sanders in his book Silver Bonanza.) In fact, the ratio from the 12th century to roughly the 17th century was about 12 to 1, which is what I call the "natural ratio" at that time, and I define the natural ratio as the amount of silver to gold in the earth’s surface. Right now it’s less than 12 to 1, having dropped down to about 8 to 1, which means that there’s about eight ounces of silver in the earth’s surface for every ounce of gold. So that’s the natural ratio, and that ratio held for hundreds and hundreds of years with the free market making the determination—amazing! Then, Sir Isaac Newton monetized it at a ratio of 15.5 to 1 after England was having a terrible time with their fiat money system. Newton came in and put them on a gold standard and then, with his brilliance, he picked a number basically based on the marketplace (at that time), which determined that the correct ratio of silver to gold was 15½ ounces of silver to 1 ounce of gold. And that’s what we called the monetary of the classic ratio, and that held roughly from the 17th century for hundreds of years through about the 1873 timeframe. Then there was The Crime of 1873, which we don’t have time to go into, but that was roughly where silver was demonetized in the United States, and after that, you’ve seen the ratio undergo some really wide swings. It’s gone up as far as 100 to 1 a couple of times, and we’ve seen it just kiss the classic ratio of 16 to 1 for a day. In modern times, meaning during the last big run-up in January of 1980, it got back to classic ratio, but again, it was only for a day or two at the most. And then the ratio dropped off. So having given you all that background, what does it mean? For some it means you can trade the ratio, which is something that I do personally. Secondly it’s a good indicator for the overall direction of the market as far as I’m concerned. When silver’s leading gold, we’ve got more momentum in the metals than when it’s not, and silver has basically outperformed gold since 2003 until recently. In other words, in the ratio from 2003, the bottom of the silver market, and when gold was at $252 in 2000, silver went from the 80 to 1 ratio down to about 55. Currently it is around the 65 to 1 level. And it was working its way even lower when we had this credit crisis surface, which didn’t surprise me. We got a big spike on the ratio and actually it got to around 90 to 1—again, very temporarily, maybe for a day or two. I think it shows that silver is still undervalued to gold, but I’m open-minded enough to think that maybe something else is going on. In an absolute all-out deflation, which would be the better—gold or silver? The preponderance of evidence is that gold does better. I wrote a paper on this; it was in The Morgan Report, and I also did a couple of speeches on this subject. The record is mixed as far as how silver does in a deflation. Gold is pretty much known to do well in deflations, and this is all history. And because it is history, it doesn’t absolutely guarantee you that the next time around gold will do great in a deflation, but it certainly implies that it will. As far as silver is concerned, there have been times that silver did better than gold in a deflation, and many times where it did not. But overall it’s done fairly well and it held its purchasing power, so even in a deflationary scenario I wouldn’t give up on silver. But as far as what will it do, if we look at it today we would say gold has actually done better than silver here in the last several months, because the ratio has gone from the 55 to 1 back to around the current 65 level. Regardless, the overall perspective would be, how is silver doing against all other financial assets, including gold? And the answer to that is, essentially, gold has done best against all other financial assets, the general equities, the mining stocks, housing sector, bonds; and silver has done better than the base metals and most other sectors. Silver is partly industrial and partly monetary and you can argue all day if it’s both or not. I’m absolutely convinced that it’s both. I’ve never argued that silver is just money. I have argued very strongly that silver is money but it’s not only money; it’s certainly an industrial metal as well. In summary, if [our readers] think—as I do—that the main problem ahead is a currency crisis with the U.S. dollar, then I would urge you to study what silver did during the last period (most recent) during a prelude to a currency crisis. Basically, it outshone almost everything! The problem is people are too shortsighted and look out only so far, not realizing that once everyone understands that the death of the dollar is imminent, there will be a mad rush for the precious metals both gold and silver! Mr. Jeffries: David, always a pleasure to have some time with you. We really get a kick out of talking with you, but also I also commend you, too, for the learning. We always have some great information.

Commodity Daily – A World of Possibilities Global Liquidity

Commodiy Daily Blog

Global Liquidity

Same chart, except with the dollar index instead of gold

Annual percentage rate of change in the combination of a US money measure called the monetary base plus the total change rate of reserves of the main Central Banks of the world.

It basically measures how fast the central banks are adding liquidity by measuring the growth rate of their own reserves at the IMF, then adding the monetary base to overweight the US. Source: IMF & Fed. Note also that the reserves data on which the charts are based do not include all Central Banks. China, for example, does not report data to the IMF.

A note on this global liquidity chart:
We’ve had a few question the correlation lag between the two lines in both the late ’70s and recently. They ask, if the correlation is supposed to be so good then why was there a 2+ year lag in both cases between the peak in liqudity and the peak in gold. Our answer is related to sentiment based on having wrong facts. Both in the late ’70s and recently, most people are not aware or do not believe that inflation is running much higher than what their governments say. When they do start to truly believe that inflation is significant, gold and many other commodities will move much higher.

Be very cautious about extrapolating that gold prices are due to fall greatly *and* on the longer term. We recommend that you notice that global liquidity peaked in 1977 and gold didn’t peak until 1980, it’s still expanding at over 10% even though the current trend is down, and also that there are strong indications that global liquidity is only temporarily dropping (see GDP and money creation above)(written and as of May 2006).

Annual percentage rate of change obtained by adding the GDP growth rate of the G7 countries, adding the same growth rate percentage data from the global liquidity graph above this one, and then subtracting the average of the interst rates of the 10 year Treasury bond and the 10 year Euro bond.

In other words, we’re measuring the production rate of goods and services of the majority of the Western world, adding in excess money creation via the measurement of central banking reserves growth, and then subtracting an average interest rate to account for the cost of the money created and used. Source data is from the IMF, the ECB, & the Federal Reserve.

Commodity Daily – Indian Nifty update 19 Aug 2009

Commodity Daily – A World of Possibilities Global Market Trend update

INDICES

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Change

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7×5

S&P 500 – Sep ESU9	1013.50	+ 11.25	1001.61	1003.75	Bullish
Dow Jones – Sep YMU9	9388	+ 69	9295	9293	Bullish
Nasdaq – Sep NQU9	1631.75	+ 13.00	1611.69	1615.25	Bullish
Russell – Sep TFU9	575.50	+ 5.10	568.56	566.87	Bullish

INTEREST RATES

US T-Bond – Sep USU9	118-06	+ 1-12	117-06	116-07	Bullish
US T-Note – Sep TYU9	117-01	+ 0-27	116-06	115-15	Bullish

CURRENCIES

US Dollar Index – Sep DXU9	78.580	− 0.320	78.982	78.612	Bearish
Australian Dollar – Sep ADU9	0.8407	+ 0.0097	0.8319	0.8369	Bullish
British Pound – Sep BPU9	1.6587	+ 0.0104	1.6512	1.6792	Neutral
Canadian Dollar – Sep CDU9	0.9202	+ 0.0024	0.9155	0.9284	Neutral
EuroFX – Sep ECU9	1.4293	+ 0.0102	1.4200	1.4262	Bullish
Japanese Yen – Sep JYU9	1.0480	+ 0.0064	1.0422	1.0362	Bullish
Swiss Franc – Sep SFU9	0.9348	+ 0.0060	0.9285	0.9314	Bullish

LIVESTOCK

Feeder Cattle – Sep FCU9	99.900	− 0.125	100.189	101.050	Bearish
Live Cattle – Oct LCV9	88.200	− 0.150	88.169	89.475	Neutral
Lean Hogs – Oct LHV9	45.400	+ 1.425	44.736	47.833	Neutral
Pork Bellies – Feb PBG0	79.150	− 0.250	79.347	80.458	Bearish

GRAINS

Corn – Sep CU9	324^4	− 6^2	327^6	336^0	Bearish
Wheat – Sep WU9	481^4	− 8^6	486^6	511^4	Bearish
Soybeans – Sep SU9	1065^2	− 27^2	1085^2	1085^4	Bearish
Soybean Meal – Sep SMU9	335.9	− 4.6	340.2	341.6	Bearish
Soybean Oil – Sep BOU9	37.64	− 0.94	38.06	37.15	Neutral

ENERGY

Crude Oil – Sep CLU9	70.96	+ 0.80	70.31	70.95	Bullish
Heating Oil – Sep HOU9	1.9190	+ 0.0269	1.9100	1.9039	Bullish
Natural Gas – Sep NGU9	3.358	− 0.121	3.510	3.811	Bearish

METALS

Gold – Dec GCZ9	956.7	+ 4.2	951.3	962.3	Neutral
Silver – Sep SIU9	15.005	+ 0.420	14.559	14.529	Bullish
Copper – Sep HGU9	2.9215	+ 0.0980	2.8118	2.7495	Bullish

FOODS & FIBER

Orange Juice – Sep OJU9	109.80	− 1.50	109.96	97.95	Neutral
Sugar – Oct SBV9	22.21	− 0.76	22.30	20.12	Neutral
Cocoa – Dec CCZ9	2932	+ 32	2892	2900	Bullish
Coffee – Dec KCZ9	136.05	− 2.65	138.38	137.55	Bearish
Cotton – Dec CTZ9	64.09	+ 0.21	63.93	61.97	Bullish

Commodity Daily – A World of Possibilities China H1 Gold Output Up 13.5% – …

China H1 Gold Output Up 13.5%

China’s gold output rose 13.5 percent year-on-year to 146.5 tons in the first half, the Ministry of Industry and Information Technology said on August 5.

Eastern China’s Shandong Province produced 21.2 percent of the total, followed by central China’s Henan province with 12 percent and Fujian province, in the southeast part of the country, with 8.3 percent, the ministry said.

In 2008, China passed South Africa to become the world’s largest gold producer, with total production estimated at 282 tons.

From wires