by Addison Wiggin – April 8, 2011
- Gold and silver set records, silver tops $40… Why one market veteran sees a May 16 catalyst for $2,000+ gold before year-end
- Oil at new highs, corn at all-time record and more fallout from a tanking dollar… again…
- Shortages of bullion blanks, botched collector issues: Ron Paul puts U.S. Mint under the microscope
- Paint job or taint job? 1,000 steps forward to prove how desperate they are to avoid foreclosure
- Plus, a few answers to your questions about fees and average contract size in Strategic Currency Trader
0:00 — As we do more prep work this morning for our “Fight or Flight” symposium in Vancouver, we see a massive flight from the dollar… into tangible assets.
At 75.2, the dollar index has slumped this morning to a 15-month low.
Gold has reached an all-time high of $1,474. Silver broke through $40 overnight and hasn’t looked back.
0:09 — Traders are shrugging their shoulders and hitting the bid while the argument over the bar tab on the Titanic continues.
“My expectation is before the weekend, they will come to some sort of agreement,” says veteran gold analyst John Ing commenting on Congress’ apparent inability to trim even 2% of the current year’s deficit.
“But this is just a prelude to the main event, and that’s when the debt ceiling has to be discussed.”
0:20 — If you’ve missed any of the plot twists in the last 24 hours — despite being discussed, analyzed, defrocked and disemboweled by the media ad nauseum — don’t worry. You’ll get to see the whole show all over again next month.
Treasury Secretary Tim Geithner says Uncle Sam will bump up against the $14.29 trillion debt ceiling on May 16.
Worse, a Treasury analysis indicates the ceiling will have to be raised at least $1 trillion just to buy the government time until the end of fiscal 2011 on Sept. 30. To get past the 2012 election, should there still be one? Better boost it by $2 trillion.
0:41 — “If the White House and Congress cannot agree to raise the debt ceiling,” John Ing forecasts, “the U.S. would have a debt meltdown, shutting down government, and/or default on its international debt obligations, causing financial havoc.”
Which, in turn, would make you and your gold plays look like pure genius.
“Today, 60% of the world’s foreign exchange remains in dollars,” Ing goes on, “despite America’s share of global output at only to 20%. Last year, the sovereign debt problems pushed gold higher and euros, the pretender to the throne, fell in value because [the euro] too is a faith-based currency. Gold is the default currency.
“Now, with the geopolitical environment heating up, a looming debt ceiling showdown together with increasing inflation, gold has become the haven of choice. Consequently, we expect gold to average $2,011 an ounce in 2011.”
[Ed note. If you’re not looking like a genius already, there’s still time. Byron King shows you nine ways to buy gold in this presentation.
1:01 — Oil, meanwhile, is at another 30-month high. At last check, a barrel of West Texas Intermediate fetches $111.39. Brent crude, the benchmark in much of the world outside North America, is up to $124.46 — a 32-month high.
In addition to the usual tensions in the Middle East, traders are getting jittery about elections tomorrow in Nigeria — an even bigger oil producer than Libya, and the United States’ No. 5 supplier.
1:12 — Corn has now exceeded its July 2008 highs. At $7.67 a bushel, corn is just a nickel off a record reached during yesterday’s trading on the Chicago Board of Trade.
You can’t blame it on shrinking supply. According to a report from Commerzbank, global corn production will likely set a record this year. And in the United States, the Agriculture Department estimates acreage devoted to corn will reach its highest this year since 1944.
The issues are that “demand remains robust; inventories hover at dangerously low levels; and weather remains a risk, as ever,” according to a research note from Barclays.
1:21 — One commodity that is not setting a record on dollar weakness this morning is copper. At $4.46 a pound, it’s still more than 15 cents off the all-time high set in mid-February. And it may be setting up for a further price correction still.
“Since Dec. 1, copper inventories at the London Metal Exchange (LME), the warehouse of the world,” observes Chris Mayer, “have risen 1,301 metric tons per trading session.”
In fact, LME inventories are now five times the level they were when copper reached its 2008 peak of $4.08 – before crashing to $1.25.
Inventories in Asia are running up too. And that’s happening even while China — which accounts for 40% of global copper demand — is raising interest rates to try to put a lid on inflation.
“The big surge in the copper price since 2010 may have been a function of building inventory.” Chris suggests. “But now those inventories appear to be full.” The Financial Times reports mining companies have been hedging some of their copper production for more than three months now.
“Moreover,” adds Chris, “the market consensus on copper is broadly bullish. We could see a pretty nasty correction here. Long term, the dynamics for copper look good, but I think we’re set up for some short-term pain.”
Chris is much more enthusiastic about another sector in the commodities space. In fact, he sees an opportunity to multiply your money several times over. He makes a compelling case here.
2:35 — Stock traders appear sanguine about the prospect of Washington, D.C., closing up shop for a few days. The major indexes are flat after a whipsaw week.
2:41 — Assuming Congress can get its proverbial head out over the budget, members are encouraged to their attention to a trade deal between the United States and Colombia.
After a meeting yesterday at the White House with Colombian President Juan Manuel Santos, President Obama pronounced himself satisfied with some final tweaks to the agreement.
Santos and Obama, oblivious to a looming attack by rogue microphones
Obama campaigned against the deal in 2008. Naturally. But new language in the bill protecting Colombian labor leaders from violence has, apparently, changed his mind. Now the president says Colombia “can be a role model for the rest of the region.”
U.S. union leaders still disagree. Naturally. And some Congressional Democrats are still opposed. Republicans, meanwhile, want to tie the deal’s ratification to another trade deal with South Korea. We expect it will take forever to sort through the issues, but photo ops like the above appear to at least be calling attention to the potential agreement.
Even without the treaty ratified, we’re convinced after our recent visit that opportunities abound in Colombia. You’ll learn explicitly which ones are ripe and easy for you to take advantage of in the next issue of Apogee Advisory.
3:07 — Witnesses testifying yesterday at a hearing of Rep. Ron Paul’s House Subcommittee on Domestic Monetary Policy said sales at the U.S. Mint could be one-third higher if it weren’t for mismanagement.
Bullion blanks are in short supply, especially for Silver Eagles. The Coeur d’Alene Mint in Idaho is the U.S. Mint’s primary source, but additional supply has to come from overseas.
“We could supply all the blanks the U.S. Mint would ever need,” said Ross Hansen of Northwest Territorial Mint. He acquired a domestic producer of blanks after the U.S. Mint decided to take its business down under to Australia.
“Every time there is a new collector product offered and you go to the [Mint] website,” said Beth Deisher, editor of Coin World, identifying problems experienced by collectors too, “people sit there for hours trying to get in… People will pay people who will sit for hours and hours trying to get into the site.”
Yesterday was only a hearing. When we were in his office on Wednesday, Dr. Paul said he was having people testify to get a full understanding of why there are shortages of blanks. Then the subcommittee will be making recommendations…
[Ed. Note: Which means, of course, there’s still time. Folly at the U.S. Mint can be played to your advantage. Our friends at First Federal have acquired a limited selection of 1/10th-ounce MS70 First Strike 2011 Gold Eagles. Previous issues of this coin have delivered impressive appreciation, as Nick Bruyer explains here. As always, we may be compensated if you buy, but we suspect the supply shortage is going to continue unabated for some time.]
3:39 — How desperate would you have to be to have someone do this to your house:
And ferners accuse Americans of being overcommercialized…
In exchange for this spiffy new paint job, the startup advertising firm Adzookie promises to pay your mortgage for each month you allow the house to continue to look like this.
“I knew the economy was tough,” says CEO Roman Mendoza, “but it’s sad to see how many homeowners are really struggling.”
There’s a three-month minimum. The initial offer drew over 1,000 applicants.
4:15 — “I suggest,” a reader suggests after yesterday’s discussion of unemployment, “that instead of publishing employment and unemployment rates, we publish the number of people paying taxes each week.
“After subtracting all the people receiving Social Security; those over 65 years; students and all those under-16 children; prisoners; all people receiving wages that are tax dollars from municipal, state and federal governments, like bureaucrats, teachers, police, fire services; all those working and receiving government contracts: the military; everyone on welfare and unemployment relief, and I think the country is living off about 87 people who are paying more taxes than they receive.”
The 5: Check your numbers, your estimate may be high.
5:00 — “Bonner is a great writer,” writes a new review that’s appeared at Amazon for Bill’s collection of essays, Dice Have No Memory. “You cannot help but be entertained by this collection of essays. His analysis is insightful, even piercing, but his insouciance can be exasperating.
“You may find much in his opinion to disagree with, but you will greatly appreciate the wit with which he puts it.”
The 5: Insouciance? We prefer to think of it as Zen-like detachment.
Have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S. With the dollar taking a beating, the euro has firmed today to a 15-month high of $1.443. The yen is up to 85.2. And the pound fetches $1.638.
With the move in the pound, readers of Strategic Currency Trader are in line to collect a 308% gain by day’s end on a play they opened Monday. Editor Abe Cofnas advised the risk-averse to take profits on half the position Wednesday for a 100% gain. So that’s an average of 206%.
With each play in the one-of-a-kind market Abe follows, you’re in on Monday, out by Friday. Last week, readers bagged a 153% gain on the Swiss franc, and 170% on the yen. If you want to be on board for the next round of trades Monday morning, here’s where to go.
P.P.S. “I’m intrigued by Strategic Currency Trader,” a reader writes, “but don’t know enough to try that out. In particular, I’m interested in knowing what is a good size of risk capital to make that worthwhile. Do you need thousands or tens of thousands of dollars? Are there low-fee brokers?”
The 5: No, you don’t need thousands of dollars, and you won’t get slaughtered with fees.
Abe is helping to pioneer a way to play currencies without the expenses and risks of conventional forex trading. You can get started with as little as $100, and the average cost for one position is around $30.
Fees are rock bottom, too. The exchange Abe follows charges only a $1 fee per contract transaction. So on average, it will cost you $31 (the contract price plus the fee) to jump into a play. No other trading advisory in North America covers this market.
Abe’s next recommendation comes Monday morning. Here’s where you can get ready.