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Buy Gold, Sell Oil

September 27, 2012 by · Leave a Comment 

The Daily Reckoning

Yeah, yeah, I know…gold and oil are both hard assets, but that doesn’t mean they will both provide a reliable hedge against the inflationary trend Ben Bernanke is creating.

In short, I like gold much better than oil…at least for the next couple of years.

The best reason to own gold is also the most well-known reason. The US government prints a lot of money, as the nearby chart plainly shows.

Hourly Gold Production vs. Hourly Dollar Production

In round numbers, the Fed conjures about 55 million fresh dollars into existence every hour. By contrast, the entire world’s gold mines only manage to extract about $15 million worth of gold from the earth every hour and US mines only extract $2 million worth of gold per hour. In other words, Ben Bernanke creates US “money” about 27 times faster than US gold mines.

Wild stuff.

It is hard to fathom a readjustment of gold to keep up with the amount of money created. But that readjustment seems inevitable.

Obviously, inevitable is not the same thing as imminent. But there is good reason to think the gold price will top $2,000 fairly soon. The Deutsche Bank report shows how the gold price has pretty much marched in step with the Federal Reserve Bank’s money printing since 2000.

Based on all this kind of statistical analysis, even the mainstream Deutsche Bank predicts gold will top $2,000 in the first half of 2013.

The obvious take-away is to own some gold. Second, look at gold stocks — which have lagged the metal for some time and seem to be showing some life finally. The GDXJ, which is an exchange-traded fund made up of small gold stocks, is up over 25% since early May. It remains a good way to play a gold stock rally if you don’t want to take on the risks and frustrations of owning individual gold stocks.

Meanwhile, the outlook for the price of crude oil seems much less upbeat. In fact, I think the price of crude is likely to tank over the next couple of years.

I have said before that I think the oil bull market is on its last legs. In this, I’m just playing the odds. History and economics dictate what those odds look like.

For example, we know stock markets don’t trade for 30 times earnings — as the US stock market did in 2000 — for long. That was a figure far above the long-term average for stocks. And stocks subsequently crashed.

We know housing prices can’t sustain a price of 32 times the cost to rent them — as they did when housing prices peaked in 2006. That was again far above the long-term average of just 20 times. Housing prices later crashed.

Similarly, we can conclude that the current oil price — which is currently 230% above its long-term inflation-adjusted price — won’t last either.

The current bull market began in 1998. The average oil price in 1998 was just $11 per barrel. So the current bull market is 14 years old. And the US oil price is nearly nine times what it was in 1998. It’s been a great run.

Just how great you can see by looking at the previous chart. Crude oil is 230% above its long-term average in inflation-adjusted terms.

Besides, it is not as if we can’t see what will slay the oil price. There are many sharp swords all over the place.

Let us consider demand. The biggest economies on the earth — the United States, Japan, China and the EU — are all slowing down or contracting.

Let us consider supply. New technology continues to unveil giant sources of supply once thought uneconomic. David Fingold, a portfolio manager at DundeeWealth, writes:

More oil? It turns out that on top of US oil shale, Alberta oil sands, West Africa and Brazil there’s yet another massive source of oil that may be coming to market. It’s called the Bazhenov Shale, it’s in Russia and it’s big. I’m no geologist, but I’ve been told it’s similar to the Cardium in Alberta. Exxon starts drilling there next year. The energy boom of the 1970s ended when the North Sea and Alaska North Slope came on line at the same time. It seems likely more than two major fields will hit the market this decade. It’s hard to see oil becoming relatively scarce anytime soon.

The Bazhenov shale could be another game-changer for the oil industry. It is yet another massive oil source to add to a list that keeps getting longer as new technology cracks open sources once thought unreachable.

People will come up with all kinds of reasons to discount the new oil supplies. But history shows that human beings are creative and tenacious.

I was among the early investors in the Bakken in 2008. I recommended Kodiak Oil to the subscribers of Mayer’s Special Situations. The stock subsequently doubled. Back then, I remember hearing some geologists scoff at the Bakken and its potential to produce significant amounts of oil at low costs. Yet, here we are. Even now, I think people still underestimate the amount of oil the United States could produce.

On oil, I must disagree with my friend Byron King, who writes Outstanding Investments and (in a revision to his older “Peak Oil” views) now says we’re at “peak cheap oil,” or the end of cheap oil. I could not disagree more.

So one thing is certain; one of us is correct.

I say it is also a certainty that oil will be cheap again. And then it will get expensive again. Then, cheap again. And so on. In other words, just like any other commodity, it will continue to boom and bust and go through cycles. Timing is the great uncertainty.

I am interested in putting my money in areas where the odds favor me. Increasingly, I don’t see the odds favoring me when it comes to oil prices. To me, oil is much like stocks in 2000 or housing in 2006. It’s overpriced and due for a sizeable selloff.

Regards,

Chris Mayer
for The Daily Reckoning

Buy Gold, Sell Oil originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. “.

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Weak traders out, hedge funds and commercials struggle over gold, Norcini says

September 27, 2012 by · Leave a Comment 

GATA

12:26a ET Thursday, September 27, 2012

Dear Friend of GATA and Gold:

Futures market analyst Dan Norcini tells King World News tonight that weak hands were flushed out of gold futures this week, leaving the struggle between commercial traders and hedge funds. Norcini is encouraged by the strength shown by gold mining shares, which, he says, are now leading the metal itself. An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/9/26_Mo…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Central banks will keep pushing gold higher, Lassonde tells King World News

September 27, 2012 by · Leave a Comment 

GATA

2:35p ET Wednesday, September 26, 2012

Dear Friend of GATA and Gold:

Mining entrepreneur Pierre Lassonde today tells King World News that gold investors should be patient but that central bank money printing and metal purchases will keep pushing the gold price higher and that $2,000 may be breached within six months. An excerpt from Lassonde’s interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/9/26_Pi…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

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GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

Strikes halt 39% of South Africa’s gold production

September 27, 2012 by · Leave a Comment 

GATA

By Carli Cooke
Bloomberg News
Wednesday, September 26, 2012

http://www.bloomberg.com/news/2012-09-26/anglogold-operations-halted-in-…

JOHANNESBURG, South Africa — South African mine strikes have halted about 39 percent of national gold output, including at AngloGold Ashanti Ltd. and Gold Fields Ltd., as unofficial walkouts spread in the country amid demands for above-inflation pay increases.

AngloGold, the world’s third-largest gold producer, today said all its South African mines have been stopped. Gold Fields lost a metric ton, or about 32,000 ounces, of output because of strikes at its KDC and Beatrix sites.

Gold-mine workers have been encouraged by the pay increase prompted by a wildcat strike in the platinum industry. A six-week walkout at Lonmin Plc’s Marikana mine erupted into violence that killed 46, including 34 shot by police last month. Workers won wage gains of as much as 22 percent, more than four times the August inflation rate, before returning on Sept. 20. Coal of Africa Ltd. employees and about 20,000 transport workers are also on strike.

“Workers are now demanding wage increases according to the ‘Lonmin settlement,’”David Davis, an SBG Securities Ltd. gold analyst, said in a note. “Strike action may well spread from other mines to Harmony’s mines and to other industries.” Harmony Gold Mining Co. said it’s unaffected so far.

Direct action over wage demands has spread as workers sidelined traditional representatives for negotiating with management, such as the National Union of Mineworkers, a backer of the governing political party. At Lonmin workers appointed their own leaders. Julius Malema, a youth leader expelled by the ruling African National Congress, has called for disruption and state control at mine operations.

Gold companies may bring forward wage talks scheduled for next year, given “the urgency of the matter,” Vusi Mabena, a stakeholder-relations executive at the Chamber of Mines, said Sept. 21. The chamber negotiates pay on behalf of AngloGold, Gold Fields, and Harmony, Africa’s largest gold producers.

AngloGold fell 5.1 percent to 283.29 rand by the close of trading in Johannesburg. Gold Fields, the world’s fourth-biggest producer, declined for a third day, losing 2.3 percent to 102.98 rand. Gold dropped 0.9 percent to $1,744.65 an ounce as of 4:22 p.m. in London.

AngloGold workers striking since Sept. 10 at the Kopanang mine were yesterday joined by staff at other operations, the Johannesburg-based company said today in a statement.

While the company received wage demands today from the strikers, it doesn’t intend to negotiate directly with them, Alan Fine, a spokesman, said by mobile phone. “Wages are not something that’s negotiated at company level, and won’t be,” he said. South Africa accounts for about 32 percent of the company’s output of the precious metal.

Gold Fields is concerned that threats of violence against staff reporting for shifts are rising, said Sven Lunsche, a spokesman. A strike that started Sept. 9 at KDC West spread to Beatrix yesterday. Workers downed tools at KDC East this month.

There isn’t any suggestion the Association of Mining and Construction Union, a rival to the NUM, is orchestrating the disruption at AngloGold’s facilities, Fine said. The strikes were “obviously coordinated, but as to exactly how it was done, a lot of that is in the realm of speculation,” he said.

Mining companies operating in South Africa have faced above-inflation increases in wage and electricity costs for each of the last three years at least. Power costs increased an average 26 percent last year and 25 percent in 2010. Mines are getting deeper and more difficult to operate as orebodies get depleted.

“The combination of declining production and unrelenting inflationary pressures suggests that almost all mature South African operations are likely to face downsizing within the next 12 to 36 months at best as an imperative and not as an option,” SBG’s Davis said of the gold industry.

AngloGold produced about 306,000 ounces in South Africa in the first quarter and Gold Fields’ KDC West and Beatrix about 212,200 ounces. The nation’s gold output was 1.35 million ounces in the quarter, the Chamber of Mines says. South Africa was the fifth-biggest gold producing nation in 2010, according to GFMS Ltd.

Anglo American Platinum Ltd., the largest producer of the metal, has lost about 20,000 ounces of output as workers refuse to report for duty at its Rustenburg operations, the company said today. It has issued a “final ultimatum” to them, Chief Executive Officer Chris Griffith said today.

The Rustenburg operations, where about 21,000 workers are on strike at four mines, were on review before the strike started, he said. Job losses are “inevitable” and the industry is “in crisis,” he said.

Anglo American Plc said Feb. 17 it will review its platinum assets, given the outlook for continued weak prices for the metal, which had dropped 11 percent in the year prior to that date. Amplats, as the platinum company is known, declined 6.1 percent to 403.02 rand.

Impala Platinum Holdings Ltd., the second-largest producer, increased pay to halt a six-week strike in January and February at Rustenburg, the largest mine producing the metal. Workers have since made new demands, Johannesburg-based Impala said Sept. 11.

More than 20,000 freight transport workers are also on strike, demanding a wage increase of 12 percent, the South African Press Association said. Unions rejected an offer of a staggered increase of 8.5 percent effective next March followed by an additional 0.5 percent in September, SAPA said.

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GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

Do the investment banks really have a lot of metal?

September 27, 2012 by · Leave a Comment 

GATA

2:10p ET Wednesday, September 26, 2012

Dear Friend of GATA and Gold (and Silver):

A fascinating little controversy has developed in our camp.

On Monday GATA’s great friend David Schectman of the Miles Franklin coin and bullion dealership in Minnesota related in his blog the account of a bullion trader friend, Trader David R, who says that major investment banks are making a risk-free trade out of gold by obtaining free money from the Federal Reserve, buying real metal, selling futures against the metal, and collecting the contango. That is, the big dealers would not be naked short, or at least not as naked short as long suspected.

As Schectman did not identify his friend and the story thus rested on an anonymous source, it was less than authoritative. But it was plausible and there aren’t too many people in the gold business more trustworthy than Schectman, and he wasn’t attesting to the veracity of his source’s account but rather just passing it along because it was so relevant. Schectman’s commentary was headlined “The Cartel and Hedgies Are Short Paper but Long Physical Gold” and it’s posted at the Miles Franklin Internet site here:

http://blog.milesfranklin.com/the-cartel-and-hedgies-are-short-paper-but…

Anyone following GATA closely might start questioning the trader’s story by noting the disproportionate short position in silver futures of JPMorganChase. But then could Morgan be the front in silver for other investment houses?

GATA’s great friend Bix Weir of the Road to Roota letters quickly put together the arguments against Trader David R’s story. Those arguments include the Morgan short position. Weir’s commentary is headlined “Are JPM’s Comex Silver Positions Only a Hedge Against Physical in the Warehouse?” and it’s posted here:

http://www.roadtoroota.com/public/1013.cfm

It’s all a lot to think about and keep in mind.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

Silver Is Outshining Gold by a 2-to-1 Margin: Lydon

September 27, 2012 by · Leave a Comment 

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Yahoo! Finance
By Matt Nesto
September 26, 2012

Gold may have more prestige and a broader fan base, but experts say, silver is where the real action is right now. In the past 3 months alone, the price of silver has risen 25%, while gold’s recent run up, albeit impressive, has only been about half as strong.

Still, whether it’s gold or silver or platinum or palladium you are chasing, the penchant for precious metals has been reignited by the dovish central bank action commonly called QE3. But Tom Lydon, the editor of ETF Trends, says when it comes to silver, there’s more to this hard asset story than monetary policy, inflation concerns and fear.

“There’s been a huge increase in emerging market demand as more people move up to the middle class, and silver is an easier acquisition for them,” Lydon says in the attached video. “Although somewhat of a speculative investment ten years ago, gold and silver are now becoming a foundation investment.” He says the average investor no longer just puts 60% in stocks and 40% bonds anymore.

Naturally, some pros have doubts that the current run can last, or at least will run out of steam. While there is really no way to tell what the future holds, metals traders and analysts do say that silver tends to outperform in a bull market, underperform in a bear markets, but overshoot in either directions.

While silver is unarguably more volatile, Lydon points out that it is still almost 40% below its highs of two years ago, while gold is just 15% beneath its $2,000 peak a year ago.

Ease of access via ETFs is another reason why metals are gaining market share in portfolios Lydon says, calling the precious metal investing process ”much more free flowing.” While he says the largest silver fund is the iShares Silver Trust (SLV), the ETFS Physical Silver (SIVR) and the Powershares DB Silver (DBS) are also very widely held and actively traded.

In addition, just like their brethren in the gold patch, Lydon says some investors prefer to own the metal producers instead of the metal itself and do so via mining ETFs such as the Global X Silver Miners (SIL) or the iShares Global Silver Miners (SLVP). But no matter what route feels right, Lydon says to would-be investors, “it’s exciting, but you’ve got to do your homework.”

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Fed’s Evans Wants Months of Jobs Gains Above 200,000

September 27, 2012 by · Leave a Comment 

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Yahoo! Finance
By Ann Saphir
September 26, 2012

HAMMOND, Indiana (Reuters) – The Federal Reserve should keep on buying assets to lower borrowing costs until U.S. employers are routinely adding 200,000 or more jobs a month, for at least two quarters, a top Fed policy maker known for his dovish views said on Wednesday.

“I think that would be a good marker – it’s a threshold, it’s an indication,” Chicago Fed President Charles Evans told reporters after a speech in this industrial Chicago suburb. “In combination with (GDP) growth above trend, that would really reinforce and solidify the idea that we are getting substantial improvement.”

The U.S. central bank earlier this month launched a new round of quantitative easing, buying $40 billion of mortgage-backed securities each month and promising not to let up until labor market had improved substantially.

It also said it would keep short-term interest rates near zero until at least mid-2015, even after the economy is expected to show signs of strength.

The Fed did not define what it meant by a substantially better jobs market, although several top policymakers have since said they would look beyond just the unemployment rate, which now stands at 8.1 percent.

Evans said he would want to see “downward momentum” in the unemployment rate to below 8 percent. But if a stronger economy entices more people back to the job search, the unemployment rate could stay flat or even go up, he said. In that context, he said, even an unemployment rate of 7.5 percent or 7.75 percent would mark an improvement.

Evans, who rotates into a voting spot on the Fed’s policy-setting panel next year, was a big supporter of the latest round of easing, and on Wednesday called for the Fed to do even more.

“This was the time to act,” he told the Lakeshore Chamber of Commerce Business Expo. “With the problems we face and the potential dangers lying ahead, it is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy.”

Evans has long advocated keeping interest rates low until the unemployment rate falls to 7 percent, as long as inflation does not threaten to rise above 3 percent. On Wednesday he reiterated his view that providing such specific guideposts would boost the effectiveness of the Fed’s efforts to jumpstart the economy.

To boost the impact of its actions, the Fed should explicitly say that it will be just as tolerant of inflation running slightly above its 2-percent goal as it is about inflation running slightly below, Evans said.

U.S. core inflation has run below 2 percent since 2008. Unemployment, at 8.1 percent, is well above the 5.5 percent to 6 percent that many economists believe is normal for the economy in the long run.

“We should not be resistant to policies that could move the unemployment rate closer its longer-run level, but run the risk of inflation running only a few tenths above our 2 percent goal,” he said. “Such accommodative policies could further improve the employment picture, even beyond our recent highly beneficial actions.”

On Wednesday Evans also reiterated his view that the Fed will need to expand its current round of bond-buying in the new year to include Treasuries.

Operation Twist, under which the Fed buys about $45 billion in long-term Treasuries and sells a like amount of short-term ones, will expire at the end of the year. Evans said he would support adding enough new bond-buying to make up the difference.

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DCD Heavy Engineering-Heavy Mechanical Equipment for the Mining Industry

September 27, 2012 by · Leave a Comment 

DCD Heavy Engineering (or HE) is a leading mechanical manufacturing business in Africa with expertise in the production of engineered, heavy mechanical equipment for the mining, steel and allied industries.

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FLSmidth Signs Engineering Contract for Chilean Goldcorp/New Gold El Morro Project at MINExpo

September 27, 2012 by · Leave a Comment 

This week, at one of the world’s largest mining tradeshows, MINExpo, FLSmidth and Goldcorp/New Gold, Inc. signed an agreement for engineering services for key technologies for the El Morro gold/copper project in Chile. The asset, El Morro, is jointly…

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FLSmidth Signs Engineering Contract at MINExpo to Provide Services to Goldcorp/New Gold El Morro Project in Chile

September 27, 2012 by · Leave a Comment 

This week, at one of the world’s largest mining tradeshows, MINExpo, FLSmidth and Goldcorp/New Gold, Inc. signed an agreement for engineering services for key technologies for the El Morro gold/copper project in Chile. The asset, El Morro, is jointly…

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