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Good News for Gold Prices: Commodities are Wounded, But Far From Dead
Greece is frozen in a political stalemate. Youth unemployment is running at over 50%. And there has been a $1 billion run on Greek banks.
From near and afar, there appears to be no easy way out, especially now that the Eurozone is heading back into a recession.
It's times like these when investors pour into the U.S. dollar for its "perceived safety."
With commodities priced in U.S. dollars, this spike in the greenback has sent commodities-including gold prices-into a tailspin since early March.
That has many doubters asking: "Has the commodities super-cycle ended?"
It's a reasonable question considering the Continuous Commodity Index (CCI) is back down to levels it last saw in September 2010.
What's more, gold prices have backed off to near $1,500/oz., and oil prices have fallen from $110 to $90/barrel.
But as you'll see, the commodities coin does have another side.
The Other Side of the Commodities Story
In fact, a recent article by Frank Holmes, CEO and chief investment officer at U.S. Global Investors, pointed out how China and other emerging nations are in better fiscal shape than much of the West.
Even if China is slowing somewhat, it is still growing at an enviable 8% per year, with only 42% debt to GDP ratio. So rather than go for more outright stimulus, it's expected that China will target new loan growth and its M2-money supply growth to around 14%.
Meanwhile, India and Australia have just lowered interest rates while other central banks are basically refusing to raise rates.
It means the world will keep turning, people will keep consuming and annual demand of raw materials is likely to remain elevated.
As for gold prices, let's cut right to the chase.
Dr. Copper Leads the Breakout in Commodities Prices
Demand for commodities of all kinds is ramping up at breakneck speed. And despite fears of a slowdown in China's economic growth, Dr. Copper is leading the rise in commodities prices.
Copper earned that nickname because it's thought to be a bellwether on the health of the global economy, thanks to its numerous economic uses.
Prices slumped earlier this month after Chinese Premier Wen Jiabao cut China's economic growth target to 7.5%, the lowest since 2004. China is the world's largest copper buyer, snapping up 40% of annual supplies.
However, predictions for weak copper demand were muted on Monday, as the Asian giant reported a stream of new orders pushed factory activity to an 11-month high in March.
Growth in the U.S. manufacturing sector also picked up in March, more evidence that the world's largest economy is gaining momentum.
The red metal jumped on the manufacturing data and is up 13.8% year-to-date (YTD).
The news has analysts predicting demand for copper is likely to pick up steam.
"The U.S. is an important market, and with the economic outlook there brightening, demand is also likely to surprise to the upside," Commerzbank AG (PINK: CRZBY) analyst Eugen Weinberg told Reuters.
But Dr. Copper is just part of the story.
Just take a look at what's happening in other commodity markets…
Bankers Committed Fraud to Get Bigger Bonuses
In case you didn't catch the article titled "Guilty Pleas Hit the 'Mark'" in the Wall Street Journal, I'm here to make sure you don't miss it.
This is too good.
Three former employees of Credit Suisse Group AG (NYSE: CS) were charged with conspiracy to falsify books and records and wire fraud. They were accused of mismarking prices on bonds in their trading books by soliciting trumped-up prices for their withering securities from friends in the business.
By posting higher "marks" for their bonds in late 2007, they earned big year-end bonuses.
What a shock!
What's not a shock is that, after a bang-up 2007, Credit Suisse had to take a $2.85 billion write-down in the first quarter of 2008. No one knows how much of that loss was attributable to the three co-conspirators who were fired over their "wrongdoing."
Two of the three accused pled guilty. Also not shocking is the reason David Higgs – one who pled guilty – gave for his actions. He said he did it "to remain in good favor" with bosses, who determined his bonus and who profited handsomely themselves from his profitable trading and inventory marks.
As for Salmaan Siddiqui, the other trader who pleaded guilty? His attorney Ira Sorkin, the former Securities and Exchange Commission (SEC) enforcement chief, said of his client: "What he did was the result of his boss and his boss' boss directing him to do it."
You know what else is shocking?
Glencore International, Xstrata Could Make the Next Biggest Deal in Global Commodities
Tags: (PINK: GLCNF), (PINK: XSRAF), Coal, Commodities, Copper, Glencore International, market value, Mining, nikel, Xstrata Plc
Investment Strategies: Why Dividends, Inverse Funds, "Glocal" Stocks, Commodities and Emerging Economies Are the Places to Be
[Editor's Note: In this latest installment of Money Morning's "Quarterly Report" forecast series, Executive Editor William Patalon III queried Chief Investment Strategist Keith Fitz-Gerald about the wild-and-wooly first quarter - after which the two zeroed in on the investment strategies and investment choices investors need to embrace in the months to come. Still to come: Our report on China.]
After a wild first quarter that included unrest in Egypt, Libya and Saudi Arabia, a spike in oil and gasoline prices, an apparent acceleration of inflation and continued global debt fears, investors need to embrace investment strategies and investment choices that will provide returns even as they manage risk, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
"In many ways, we are truly entering uncharted territory," Fitz-Gerald said.
In a wide-ranging interview with Executive Editor William Patalon III that represents the latest installment of Money Morning's "Quarterly Report" series for the 2011 second quarter, Fitz-Gerald talked about the first quarter and provided a detailed look at what he sees ahead. For instance, Fitz-Gerald said that:
- Despite the bull market in U.S. stocks, the U.S. economy and accompanying financial system isn't as strong as it looks, noting that "there are still massive cracks in the system."
- Investors should make sure to watch the U.S. Federal Reserve, since its decision to continue or to end its current monetary-policy strategies could determine where U.S. stock prices go from here.
- Prices will continue their general upward trajectory, which is why he ultimately sees oil at $150 a barrel, gold at $2,500 an ounce and silver crossing the $50-an-ounce threshold.
Fitz-Gerald also detailed some of the investment strategies investors needed to consider, including the use of "inverse funds," dividend-paying stocks, and so-called "glocal" stock plays. "Glocal" stocks are the term Fitz-Gerald uses to describe large, U.S.-based multinational corporations whose global operations include a local presence – especially in the crucial markets of China and Greater Asia. Most of these companies are publicly traded, and have their shares listed on the Standard & Poor's 500 Index today.
What follows is an edited transcript of the question-and-answer session that Patalon hosted with Fitz-Gerald.
Cotton Prices Skyrocket: Don't Miss Out On 123% Gains
You could have just banked 123% gains on cotton. That's what Money Morning readers are sitting on right now. A few months ago, I told our readers to buy cotton. And if they bought when I advised, they already more than doubled their original investment. When I recommended cotton, it was trading at roughly a [...]
Tips For Hedging Silver
[Editor's Note: Silver - like gold - has enjoyed a high-octane surge. But what now? How do you keep chasing the profits that inflation is sure to bring without risking the loss of those profits should silver prices reverse? Well, options expert Larry D. Spears last week showed investors how to hedge against a possible decline in the price of gold - and this week he's back to do the same with silver.]
Gold has gotten a lot of attention recently, as the yellow metal earlier this month rose to yet another record high. However, gold's little brother – silver – shouldn't be forgotten.
Although gold has garnered most of the headlines – thanks primarily to its historic role as a hedge against both inflation and the political turmoil – silver has actually turned in a far more impressive performance since mid-2010.
In fact, the silver futures contract calling for May 2011 delivery – traded on the Comex division of Chicago's CME Group Inc. (Nasdaq: CME) – has risen more than four times as much as gold over the past seven months.
What the Looming Inflation Tsunami Means for the U.S. Housing Market and Commodities
[Editor's Note: In his Feb. 9 story "How to Beat the Looming Inflation Tsunami," Money Morning Contributing Editor Martin Hutchinson told readers how to prepare for looming U.S. inflation. Many of you immediately responded with excellent questions, and Hutchinson addresses some of your biggest concerns in this follow up.]
A few weeks ago, Money Morning Contributing Editor Martin Hutchinson warned readers about the looming inflation tsunami threatening the United States.
Easy money policies like those of the U.S. Federal Reserve and other central banks have helped raise prices in emerging markets, as well as the United States, and sent the commodities sector surging.
"[W]e can expect inflation to be with us for several years, too," said Hutchinson. "In fact, expect it to get worse for the next three to four years, while Ben S. Bernanke remains at the helm of the nation's central bank."
As inflation threatens to eat away at the value of stocks and bonds and cut into investors' returns, Hutchinson said one of the best investments to make ahead of rising prices actually is a house.
The housing market is at or near its bottom and rates on 30-year mortgages are desirable for buyers. Investors who find the right neighborhood, strike a good deal and don't financially overextend themselves could find a sound housing investment as the best store for their money.
Commodities, "BEE" Markets and Multinational Stocks Are Best Investments For 2011
[Editor's Note: This is the first installment of a two-part interview with Money Morning Chief Investment Strategist Keith Fitz-Gerald, during which the investing veteran explores the state of the U.S. economy, stock market and commodities prices. The second part appears tomorrow (Friday).]
The U.S. recovery will continue this year, and U.S. stocks will continue to advance, though investors can expect whipsaw trading patterns and must beware of the point when the U.S. Federal Reserve ends the cheap-money mindset that's fueling the advances, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
But uncertainty also brings opportunity, and Fitz-Gerald sees tremendous profit potential for those who are willing to remain invested – and who have the courage to make opportune choices. Commodities of all types, so-called "BEE" (Big Emerging Economy) markets and the stocks of companies that derive a major portion of their sales from these fast-growing overseas economies should be on everyone's investment menu.
And don't ignore multinational stocks from your own backyard: While it might surprise many investors to discover this, many U.S.-based companies are major players abroad, Fitz-Gerald says.
"I see the markets generally rising until mid-2011, which is when the reality of stimulus spending, the looming budget battle and fiscal follies set in. I believe that 15% is not out of the question, though not all in a straight line and not all at once," says Fitz-Gerald, a former professional trade advisor and best-selling author who is a regular contributor to Money Morning.
In a wide-ranging interview with Money Morning Executive Editor William Patalon III, Fitz-Gerald assessed the health of the U.S. and global economies, provided his outlook for the U.S. stock market, and for commodity prices, and even offered a fix-it plan that Washington would do well to take note of.
To read the text of Keith Fitz-Gerald's interview, please read on…
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