Month: September 2011

London Gold Market Report
from Adrian Ash
BullionVault
Thurs, 29 Sept 2011

WHOLESALE PRICES for silver and gold gave back an early rally in London trade Thursday morning, trading at $1615 and $30.15 per ounce respectively as Eurozone stock
markets rose after the German parliament approved extra financial support for weaker member states.

Both German and Greek government bond prices rose – as did the Euro – offering new buyers respective yields of 1.99% and 22.88% per year.

Commodity markets were mixed, as industrial metals slipped but Europe’s benchmark Brent crude oil contract rose moe than 1% to $105 per barrel.

“The Double Top formation in gold remain our main technical focus,” says the latest chart analysis from bullion-bank Scotia Mocatta.

“Only a close back above $1704 would remove the bearish outlook,” it reckons, targeting a “measured move objective” off this summer’s peaks above $1900 down at $1488 per ounce.

The last week’s 8% and 17% drops in gold and silver prices continue to jar, however, with the surge in physical investment demand reported by retail bar-and-coin dealers in both Europe and North America, as well as with extended delivery times in London’s wholesale bullion markets.

“The blockage is logistical,” said a senior precious-metals trader in London to BullionVault this morning, pointing to strong shipping demand from Swiss refineries wanting 400-oz London gold bars to convert into kilo-bars for European and especially Asian buyers. Advanced bookings for silver shipments to China ahead of the New Year are also rising, he said.

“Current [gold] buying momentum is much stronger than the respective comparable period in 2009 and 2010,” agrees today’s note from Standard Bank’s commodities team, “matching levels last seen in August 2010 and February 2011.”

This surge in demand “is broad-based throughout Asia,” says Standard, and “particularly strong” from India – where next month’s Diwali festival is traditionally associated with strong gold jewelry demand – while sales of gold scrap from existing owners “have been sporadic rather than consistent.”

On the US gold futures market, in contrast – where derivative contracts are typically settled in cash rather than metal – “We expect [this week] will show another and sharper decline in net speculative [demand],” says the latest Precious Metals Weekly from London’s VM Group for ABN Amro.

The falling silver price saw a 10% drop in speculators’ “net long” position (of bullish minus bearish bets) even before last week’s sell-off, according to VM’s data, while as a proportion of all Comex gold futures contracts, the “net long” held by non-industry players fell from 40% at the start of August to barely 26% last week.

Yesterday saw the gross tonnage held to back shares in the SPDR Gold Trust – the world’s largest gold ETF – end unchanged at 1242 tonnes, down 0.8% from a week ago and 6% below its peak of June 2010. By value, however, the SPDR Gold Trust’s holdings have swelled by more than 22% since then to reach some $64.5 billion today.

“The German parliament is voting for too little, too late,” said Fredrik Erixon of the European Centre for International Political Economy in Brussels today, as the vote in Berlin saw strong parliamentary approval for an extra €88 billion in German support – some $118bn – for the European Financial Stability Fund.

Germany will now guarantee up to €211bn ($287bn) in so-called “bail out” loans to weaker member states. Some 40% of respondents to Bloomberg News’ latest quarterly survey see at least one member state quitting the 17-nation currency bloc in the next year, and more than 1-in-3 respondents foresee a global recession sparked by the Eurozone’s debt crisis.

“You suddenly have a crisis of confidence and trust that’s impacting markets and could hurt economies,” says one respondent, chief investment officer at Halkin Investments in London, Jean-Yves Chereau.

“Politicians need to move ahead pretty quickly.”

Lack of political leadership is a key factor driving gold investment, said HSBC precious metals analyst James Steel last week at the London Bullion Market Association’s conference in Montreal.

Gold’s 10-year rise to date “shows that the political and financial systems the world lives by aren’t working,” agreed another LBMA Conference speaker, John Fallon of Peer Capital Management.

Adrian Ash
BullionVault

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Sept. 29 (Bloomberg) — Global investors anticipate Europe’s debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found. About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Dominic Chu reports on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Be Cautious of EU Optimism

by Jason Jenkins, Investment U Research
Thursday, September 29, 2011

Remember when the market had a massive gain this summer because there was the thought of a Grand Compromise on the U.S. debt problem between President Obama and Speaker of the House John Boehner? Remember when markets spiked in August when Federal Reserve Chair Ben Bernanke mentioned that the Fed had a “monetary tool-kit” at its disposal. Investors said, “QE3, here we come.”

Now take this all in.

After you digest it, you realize none of this came to pass, but the market right now is just sensitive to any news. And now we see a large market gain on the news, and EU officials are considering the possibility of a significant expansion in the European Financial Stability Facility (EFSF) by leveraging its assets. Investors think the Europeans have finally faced the reality of their sovereign debt problem.

European authorities have also reported the possibility of setting up a special purpose vehicle to buy bonds issued by troubled EU countries. The plan would take EFSF funds to capitalize this vehicle, enabling it to issue bonds and then use the proceeds to buy debt of distressed states.

The investing world loves to believe in the scared-straight notion that the geopolitical world will get it in the end when governments and economies lie on the brink of disaster. But as we have seen lately, that world doesn’t always make sense.

We’ve heard words of encouragement before from Europe, but what has really happened to fix the problem instead of kicking the can down the road?

Note to the EU, your road ends at a cliff in a very few meters…

An Exuberant Market Misses Eurozone Headlines

In all its exuberance, here is what the market has missed the last few days:

• The majority of Eurozone governments have yet to approve the proposal from this summer to increase the EFSF from 250 billion to 440 billion euros.

• On top of that, the issue of bolstering the EFSF may come at an inopportune time for German Chancellor Merkel who is attempting to gather support for the initial EFSF proposal ahead of a parliamentary vote this week amid resistance from within her own coalition.

• Many EU officials have stated their commitment to developing a coordinated response to all of these problems by early November. However, there is growing concern that this timeline, when the leaders of major economies are scheduled to gather at a Group of 20-summit meeting in France, may not be soon enough.

• And of course, you have to trust Greece in all this. Even though they haven’t in the past followed through on all of their austerity measures, you have to believe it’s different this time.

How to Play Eurozone Skepticism

For the past few months, we said that the best plays against the Eurozone crisis were Market Vectors Double Short Euro ETN (NYSE: DRR) and PowerShares DB US Dollar Index Bullish (NYSE: UUP).

As a value play, we’ve also recommended beaten-down European stock Telefonica (NYSE: TEF), the biggest telephone company in Spain and the largest wireless provider in Britain. The fall of the euro most likely will not affect Telefonica’s business because roughly 60 percent of it is coming from growing Latin American markets.

Good investing,

Jason Jenkins

Article by Investment U

Sept. 29 (Bloomberg) — Craig Ferguson, a currency hedge fund manager at Antipodean Capital Management in Melbourne, talks about global financial markets and his investment strategy. Ferguson, speaking with Rishaad Salamat on Bloomberg Television’s “On the Move Asia,” also discusses Europe’s sovereign debt crisis and the U.S. economy. (Source: Bloomberg)

Utica Shale Could Spur M&A and Ohio Steel

by Justin Dove, Investment U Research
Thursday, September 29, 2011

The Ohio Oil and Gas Energy Education Program (OOGEEP) released a very bullish projection this month on the economic impact of Utica shale activity in the region.

The report predicted that Utica shale production could generate 204,500 jobs in just four years and infuse billions into the regional economy.

It follows claims by Chesapeake Energy (NYSE: CHK) that the Utica is “analogous” to the Eagle Ford. It also claimed that its holdings in the region could generate up to $20 billion for shareholders – greater than its entire current market cap.

“The play reminded us of the Eagle Ford shale, which is distinctive because it’s a three-phase play of dry gas, wet gas and liquids,” Chesapeake CEO Aubrey McClendon said.

David Fessler recently explained the importance of the liquids-rich shale plays right now, and eastern Ohio is certainly shaping up to fit that bill.

(Source: Rigzone)

Utica Shale Is Attracting Big Players

Chesapeake Energy isn’t the only company bullish on the prospects of the Utica. EV Energy Partners (Nasdaq: EVEP) Chairman and CEO John Walker feels the presence of more than just shale will attract petroleum companies and help bring business to oil refineries in the region owned by Marathon Petroleum Corp. (NYSE: MPC).

“We hope to drown the Marathon refineries in Ohio [with Utica oil],” Walker said.

Chesapeake, which holds the lion’s share of acreage around Utica, is also said to be looking for a foreign partner to bring in for exportation and de-risking purposes.

• In the past, Chesapeake Energy has worked on similar ventures with Statoil (NYSE: STO), BHP Billiton plc (NYSE: BBL) and CNOOC Ltd. (NYSE: CEO), among others.

• Chevron (NYSE: CVX) recently acquired Atlas Energy and ExxonMobil (NYSE: XOM) recently acquired XTO Energy, giving the two giants exposure to Utica.

• Hess (NYSE: HES), CONSOL Energy (NYSE: CNX) and PDC Energy are also active in the region, along with Devon Energy (NYSE: DVN) and Anadarko Petroleum (NYSE: APC).

M&A Possibilities and Ohio’s Steel Industry

As the prospect at the Utica becomes clearer, some other smaller companies with exposure, similar to XTO and Atlas, may become attractive M&A targets to larger companies.

Prime takeover targets may include:

• Rex Energy Corp. (Nasdaq: REXX) – which holds acreage in the Utica with a market cap around $645 million.

• Another would be Magnum Hunter Resources (NYSE: MHR), with a $530-million market cap.

• Gulfport Energy Corporation (Nasdaq: GPOR) is more than double the size of Magnum Hunter and Rex at $1.35 billion, but also operates at a profit, unlike those other two.

And keep an eye on steel companies around eastern Ohio, such as AK Steel Holding Corporation Co. (NYSE: AKS) and Timken Company (NYSE: TKR), which could benefit from the increased drilling activity in the region.

According to Rigzone, “Steel remains an important industry in Ohio, and the anticipated boom in the Utica shale drilling has led to commitments from steel companies in Ohio to expand facilities for manufacturing oil and gas equipment.”

Utica Shale Production’s Tempered Expectations

While the Utica could certainly turn out to live up to the expectations being pumped up by McClendon and the OOGEEP, it’s still early in the game. There are only 16 wells, and we still don’t know much about shale drilling and its long-term effects on the environment.

In the more populated Northeastern United States, it may face more public opposition than in more rural parts of the country, such as the Bakken and Eagle Ford, and even the Marcellus shale plays.

But the fact that it’s early could also mean it’s a good time to get in on the fun. While recent news is certain to drive prices up in the short term, it may be wise for those bullish on the Utica to wait until the buzz dies down.

Another approach may be to add small positions now and slowly increase them as things become clearer in the region.

Whatever the case, there’s certainly room for some optimism with the talk of new jobs and a rejuvenated economy in the rust belt.

Good investing,

Justin Dove

Article by Investment U

Here’s why you SHOULDN’T get too comfortable

By Elliott Wave International

Bear markets are cunning beasts.

Don’t get me wrong — we are not in the bear market territory yet. At least, not officially.

An “official” bear market begins when the stocks indexes decline 20%. The DJIA’s decline from the May 2, 2011 high to the September 21 low is about 17%. Close, but no cigar.

Add to that the strong rallies we’ve seen over the past few weeks (Sept. 12-20: +685 points in the Dow, for example) — and lots of people conclude that despite the volatility, things aren’t so bad.

But let’s get some perspective. The stock market has been around a while. Only when you look at its history do you realize just how cunning — and fast, and strong — bear markets can be.

Here’s a chart we’ve shown readers before. It’s worth printing out and keeping on the wall above the desk where you open your brokerage statements.

This is the DJIA between 1930 and 1932, one of the worst bear markets in history. Robert Prechter, EWI’s president, took the time to measure the percentage gain of each bear market rally during the 2-year period — you can see them in this chart.

When you routinely see double-digit rallies (11 percent, 18 percent, even 39%) over the course of two or three years, it’s easy to be lulled into thinking that maybe things aren’t so bad.

The reality, of course, is that the bear market’s chokehold grows tighter around your neck with every drop-rally sequence. (Think back to the 2007-2009 collapse, and you’ll remember the same behavior.)

Which brings us to here and now. Rallies and declines of 300-400+ points have been so common since August that we’re kinda getting used to them.

The question is: Are we in a bear market, or is it that “maybe things aren’t so bad”?

You need some perspective to answer that question. The research we do here at EWI can help.

Free Report: Stocks — Buying Opportunity or Another “Free Fall” Ahead? Find out what these market moves mean to your investments with current analysis from Elliott Wave International. Bob Prechter has just released a FREE report — with urgent analysis from his August and September 2011 Elliott Wave Theorist market letters, including another video excerpt from the special video issue of the August Theorist. Stocks — Buying Opportunity or Another “Free Fall” Ahead? will help you put these uncertain markets into perspective so that you’ll be better positioned to both protect your investments when needed and prosper when opportunities arise. Access your free report now>>

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By ForexYard

Today, traders should pay close attention to the release of the U.S. Pending Home Sales report. This indicator always provides for extreme market volatility in the major currency pairs. Traders may find good opportunities to enter the market following this vital announcement at 14:00 GMT.

Economic News

USD – Dollar Drops on Renewed Risk Appetite

The U.S dollar drifted lower against most of its major currencie on Wednesday as riskier assets remained vulnerable to doubts over the ability of European policy makers to stem a debt crisis that threatens to trigger a global recession. By yesterday’s close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.3650. The Dollar experienced similar behavior against the CAD and closed at 1.0230.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.

Today’s Pending Home Sales release is expected to have a strong impact on the U.S currency. Any result could be a surprise, and the Dollar could go either way as a result. In any case, traders are unsure how the market will react to today’s data. A weak report could feed risk aversion, boost Treasuries and actually aid the U.S Dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the Dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the Dollar’s expense.

EUR – EUR Moves Up against Safe Havens

The EUR rose for the third straight day against the dollar on Wednesday on cautious optimism Greece’s lenders will allocate the bailout funds necessary for it to avoid a near-term default. The 16-nation currency extended gains versus the USD on Wednesday, to trade above $1.3650 amid a broad sell-off in the dollar. The EUR experienced similar behavior against the GBP as the pair rose from 0.8670 to 0.8730 by days end.
While the euro briefly turned negative against the dollar as U.S. stocks fell, the euro was supported also by data showing inflation in Germany ticked up, which should ease pressure on the European Central Bank to lower rates.

Fears of near-term Greece default and its impact on Europe’s banking system is largely behind the euro’s 5.2% slide against the dollar this month.

Looking ahead today, the main news event that may have a very large impact on the EUR and its main currency pairs in today’s trading is the German Unemployment Change around 7:55 GMT. This report is very important as likely to Impact the EUR volatility. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

JPY – Yen Sees Mixed Results Yesterday

The Japanese Yen completed yesterday’s trading session with mixed results versus the major currencies. The JPY fell against the EUR yesterday, pushing the oft-traded currency pair to 104.15. The JPY was broadly unchanged vs. the USD yesterday and closed its trading session at around the 76.50 level. The JPY did see some bullishness as well as it gained 50 points against the NZD and closed at around 59.80.
Household Spending and the Prelim Industrial Production are the sole news event on tap from Japan today and will likely have little effect on the market as it released at 23:30 and 23:50 GMT respectively. Forex traders invested in JPY related crosses should stay tuned to stock market movement today for indications on positions.

Crude Oil – Crude Oil Decline on Economic Concern

Crude oil prices fell to $81.80 a barrel on Wednesday as investor concerns about Europe’s attempts to solve its sovereign debt problems helped pulled oil prices back after a more than $4 rally the previous session.

Greece’s lenders are sending a team to Athens to inspect a government austerity plan they want implemented in exchange for aid, while Germany suggested a new bailout may have to be renegotiated

As for today, traders should pay attention to the U.S Pending Home Sales report scheduled, as it tends to have a large impact on Crude Oil’s prices recently, especially for the short-term.

Technical News

EUR/USD

It seems as though there is steam to the pair’s recent bullish turn. A breach of the lower Bollinger Band is evident on the weekly chart with a bullish cross evident on the Slow Stochastic. Entering a long position may be advised for the day.

GBP/USD

The recent bullish turn for the pair may continue today as well as supported by the weekly Slow Stochastic chart and Bollinger Bands which show an imminent bullish correction. Going long with tight stops may turn out to pay off today.

USD/JPY

The pair has been range-trading for a while now, with no specific direction. The Weekly chart’s Relative Strength Index shows the pair floating near the lower boarder indicating some upward movement may be possible. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/CHF

The pair’s recent bearish turn is likely to continue today as well. a bearish cross is seen in the weekly chart’s slow stochastic with both the daily and weekly Relative Strength index showing the pair floating near the upper boarder. Going short with tight stops appears to be preferable strategy.

The Wild Card

EUR/CAD

This pair’s recent rally has finally pushed its price into the over-bought territory on the daily chart’s RSI. Furthermore, a bearish cross is imminent on the daily chart’s Slow Stochastic pointing to a possible downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By The Sizemore Letter

2011 has been a rough year for investors.  Stocks, as measured by the S&P 500, are down nearly 8% for the year and down 14% from the April highs.  And while 14% may not sound like all that much in the grand scheme of things, investors felt every point in a surge of volatility that brought back discomforting memories of the 2008 meltdown in which the major stock indices lost half their value.

Still, some market sectors fared better than others.  Let’s take a look at Figure 1.

Figure 1

Three sectors are in the black year to date—utilities ($XLU), consumer staples ($XLP), and health care ($XLV).  (Note: these figures do not include dividends.)  Consumer discretionaries ($XLY), technology ($XLK), and telecom ($IYZ) are down for the year, though less than the broader market.  After that, it gets ugly.  Energy ($XLE) industrials ($XLI) are down 10% and 14%, respectively, but the real losers for the year have been materials ($XLM) and financials ($XLF)—down 18% and 23%, respectively.

Investors who underweighted the highly-cyclical sectors and focused instead on the less-sexy, dividend-paying value plays haven’t had a bad year.

So WHAT if I bet the farm on banks and gold?

But what is remarkable about this year’s correction is that so few investors seemed to see it coming, and this included high-profile professionals.  John Paulson, the hero of 2008 who used the subprime meltdown to make the most successful trade in history, has had an abysmal year.  Due primarily to his overweighting to financials and materials—the two worst-performing sectors by a wide margin—Paulson’s flagship fund was down by as much as 40% this year. (See John Paulson’s portfolio holdings here.)  And over the past two weeks, his largest single holding—gold—has taken a tumble and may have much further to fall. (see “Is It Time to Call a Top in Gold?”)

No investor should be judged by a single nine-month period, and perhaps Paulson will ultimately prove to be “right” about financials.  Many banks appear cheap on paper, and sentiment is almost universally bearish towards them.  It’s entirely possible that he will eventually recoup the losses he took this year.

Still, Paulson’s heavy losses on his leveraged, concentrated portfolio should stand as a warning to investors.  Paulson ignored low-hanging fruit that was ripe for the picking—such as telecom and pharmaceutical shares trading at multi-decade lows based on earnings and dividends—and instead swung for the fences with a massive leveraged bet on an inflationary expansion.  Paulson risked his career and the wealth and livelihood of his clients without ever asking that all-important question: “What if I’m Wrong?”

Sir John Templeton

There is nothing wrong with betting big on a concentrated position.  Great value investors like Warren Buffett have made careers of doing so, and over-diversification is a recipe for mediocrity.   As the great Sir John Templeton said, “By definition, you can’t outperform the market if you buy the market.”

But the second half of Sir John’s quote is also quite illuminating: “And chances are if you buy what everyone is buying you will do so only after it is already overpriced.”

If you’re going to take a large, concentrated position, two conditions should be met:

1. You stand to make a bundle if you’re right.
2. You won’t lose your shirt if you’re wrong.

Mohnish Pabrai

Value investor and financial guru Mohnish Pabrai  compares the investment decision to a coin toss in which “Heads I win; tails I don’t lose too much.”  I tip my hat to Mr. Pabrai, and I only wish I had thought of that quote first.

Unfortunately for his investors, Mr. Paulson did not apply the same logic.  He loaded up on gold after it had already been in a bull market for the better part of a decade and had become trendy.  And he bet big on financials even after watching what happened to them in 2008.  He swung for the fences…and struck out.

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