Commodities and Precious Metals
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services.
Commodity Bulls usually last around 20 years. The present one started in 2001. Gold's stronger season is between Dec until Apr.
GOLD is a hedge. That is, catalysts that typically send the stock market tumbling send gold higher. Think of it as insurance against economic and geopolitical chaos as well as inflation.
Gold has no dividend or yield therefore it is not going to do well with interest rates rising.
Warren Buffett on gold: "Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head".
Historically the gold to oil price ratio is 10:1
Perhaps the Fed will end the Operation Twist replacement debt-buying program, where they are spending another $40 billion to $45 billion a month in balance sheet expansion. Ben Bernanke is on record about his concerns with the efficacy of the Feds continued monthly asset purchases. Unwinding such large positions could take a toll on markets. While the Fed has been buying, the action has been phenomenal for stocks and terrible for gold.
Here are some very useful tools for turning trading losses into gains:
Crude oil has fallen 20% in less than 2 months. The drop has been sufficient to prompt most bears to declare victory and cover their shorts or even ponder getting long near last year's lows in the mid-$70s. But Jeff Kennedy, chief commodity analyst at Elliott Wave International thinks those buyers are early by about $40. He bases his outlook on pattern recognition and psychology. His work suggests crude will plunge to the December 2008 lows of $38 a barrel then pause prior to falling another 50%. All in, Kennedy is forecasting an additional 80% drop in crude to $16.70 a barrel; a level not seen since November 0f 2001.
As a technician Kennedy pays little heed to the standard crude narratives involving Middle East tensions, supply disruptions, and refining. To him the charts tell the story and "the story right now in the crude oil price chart argues for a further decline well into 2013." One of the contributing factors for the drop in crude is strength in the dollar, particularly against the beleaguered Euro. The thesis for getting long dollars and shorting euros is simple: the Eurozone is perpetually on the brink of collapsing, taking its fake currency with it. Sometimes simple works. Fundamentally, technically and in every other way Kennedy likes the dollar as a breakout play on the dollar index and a breakdown trade against the euro. You can quibble with his methodology but you can't accuse Kennedy of hedging his bets.
Warning Gold bear flag alert:
Costs for Producing Crude Oil and Natural Gas, 2007–2009
2009 Dollars per Barrel of Oil Equivalent
Lifting Costs Finding Costs Total Upstream Costs
United States – Average $33.76
On-shore $31.38
Off-shore $51.60
All Other Countries – Average $25.08
Canada $24.76
Africa $45.32
Middle East $16.88
Central & South America $26.64
Gold, as silver asset classes. Current costs to produce: $5-6 dollars an ounce to produce silver; and around $600. dollars to produce an ounce of gold.
