A Tough Week for Hard Assets

April 19, 2013

  • 53,000 gold contracts sold in one trading session: What Ron Paul hopes to learn more about “someday”
  • The bull market no one’s watching… the unstoppable forces behind it… and for PRO-level readers, a way to play it…
  • Another make-or-break day for stocks: Ritholtz and Elmerraji on where we stand
  • A money-doubling biotech winner… the race horse doomed by Ben Bernanke… an expat’s cost of living in Kiwi country… and more!

  “TV ‘terrorism experts’ alternate between statements of the bleeding obvious and rank, worthless speculation,” tweeted Glenn Greenwald this morning.

Which is why we’re keeping only half an eye on the manhunt in Boston as we track the markets.

  “Markets are like that,” Ron Paul said laconically of gold’s swoon that began a week ago today. “They’re erratic.”

“There’s only one thing I someday hope I can find out,” he added in an interview with Dave Weigel of Slate. “There were 53,000 contracts of gold sold immediately, in one sweep, the day that gold really crashed.

“Fifty-three thousand is huge, because the gold market is very small. Let’s say we’re a Chinese bank. We want to dump our Treasuries and our dollars; we have $2 billion. You don’t dump ’em in one day, because you lose your investment. The person who was getting rid of 53,000 contracts, why would they do that? If they wanted to just wean themselves off, they would have done it slowly.”

Paul is standing pat with his portfolio: “It was an abnormal market phenomenon, but obviously the weak holders had to get out, and the strong holders are back and buying.”

100  Gold broke through $1,400 overnight and clings to it by fingernails cut to the quick this morning — $1,402. Silver’s at $23.51.

  “Most major bullion dealers are once again sold out of Silver Eagles,” writes Jason Hamlin at Kitco, “including my local dealer and some of the main online dealers that I use.”

Hamlin’s informal but revealing survey finds…

  • Tulving: Sold out. So are junk silver halves and generic silver rounds
  • Apmex: Silver Eagles are available only in rolls of 20 at $31.50 an ounce — a 37% premium — and they’re on back order
  • EBay: Premiums there are about the same as Apmex.

“Of course, Silver Eagles always carry a premium to the spot price,” Hamlin concedes. “But just a few months ago and throughout the majority of this current bull market, the premium has been in the 8-10% range.”

Conclusion: Silver may well be in tighter supply now than it was during the teeth of the 2008-09 financial crisis.

Meanwhile, the U.S. Mint has not seen fit to update its sales figures since we last reported them Wednesday. The April total remains 2,387,000.

  “It’s been a tough week for hard assets,” sums up our resource maven Byron King.

“At some moments, the sell side was in a panic. People apparently bailed from large positions — although I believe that as things quickly evolved (too quickly, actually), many jumpers were forced to exit due to margin calls.”

In the end, he’s inclined to agree with Ron Paul’s take: “Perhaps last week’s gold sell-off was more like a classic correction, where Mr. Market shakes out the weak hands. Indeed, the recent market retreat resembled a scene where valuable assets moved from weak hands to strong hands.

“At these levels, I’m inclined to suggest that long-term investors nibble away” at large-cap mining stocks. “Be sure to keep cash in reserve for other opportunities.”

  The commodity complex in general is on its heels, as Byron intimated. The CRB index sits at 283 this morning — a level last seen around Independence Day last year.

Crude is at $88.31 a barrel. Brent crude sits below $100. Copper is trading near late-2011 lows at $3.13 a pound.

  “There’s one commodity that’s outperforming everything this year,” writes Greg Guenthner in today’s Rude Awakening.

Natural gas, he says, is “the bull market no one’s watching.”

Gas jumped to 21-month highs yesterday. After touching generational lows in the spring of last year, gas prices have now doubled.

  “Two-dollar gas prices led to losses for most producers,” writes Dan Amoss, with an eye toward the exploration and production plays. “Drilling activity fell sharply. Low prices also boosted demand. Now gas is back up to $4.

“Even after the rebound in gas prices, many electric utilities that had switched from coal to natural gas are sticking with gas. Electric utilities’ gas consumption was up 20% in 2012, and consumption will keep growing. Considering the environmental and permitting challenges of coal and nuclear, most of the new and replacement power plants in the U.S. will be gas-fired.

“Just a year after the industry was in a state of financial distress, investors are already wondering when drilling activity will heat back up. At this week’s IPAA Oil and Gas Investment Symposium, investors asked whether $4 gas has changed 2013 drilling budgets. Most companies responded that it would take gas prices closer to $5 for them to spend more on drilling.”

In today’s 5 Min. Forecast PRO, Dan spotlights a contrarian energy investment that lets you capitalize on the rebound in gas prices. If you haven’t gone PRO yet, you can do so right now.

  “This bull run will eventually end,” says Fusion IQ chief and Vancouver favorite Barry Ritholtz, turning our attention to stocks, “[and] the best way to handle that trade is to wait for the market to tell you the run is over.”

Right now, he says it’s not over yet. “When you have a market up as torridly as this one has been since QE4 was announced,” he tells Yahoo Finance, “you to have to think there will be a little bit of a slowdown. You can’t grow 13% a quarter for very long.”

  “This is still very much a make-or-break session for equities,” says our own trading specialist Jonas Elmerraji of today’s action.

“The S&P 500 is clinging to its 50-day moving average today, trying desperately to catch a bid and keep the market uptrend between November and April intact. As I write, it’s still too early to tell what today’s going to bring — we’ve seen a mix of surprise crashes and melt-ups in recent trading sessions, so where stocks end the day today matters a lot.”

At last check, it appears the S&P did catch a bid, hefting its way back above 1,550.

Volatile? You bet. The best traders don’t run from volatility… they embrace it. And Jonas is looking for 75 people to take part in Phase 2 of his “Aspiring Traders Wanted” experiment. It takes only five minutes of your time each day for five days. But that’s all he says he needs to show measurable improvement in your trading knowledge.

We didn’t believe it when he first performed this experiment last October. But we couldn’t argue with the results. Then, we were talking about trades that could turn $1,000 into $5,240. This time, Jonas is upping the ante. Click here to see how…

  A breakthrough fighting cystic fibrosis appears closer than ever — thanks to a company spotted early on by Ray Blanco of our biotech team.

The disease impairs lung function. Patients often have trouble simply taking a breath. Life spans are limited to only 20-30 years. There’s no cure.

Last night after the close, Vertex Pharmaceuticals announced excellent results from Phase 2 testing of a cystic fibrosis drug — improving lung function by 9% in only 28 days.

This morning, shares were up 57%. “I think Vertex has a bright future,” Ray says, “but this price spike creates a great profit opportunity right now.”

For Ray’s readers, it’s a clean double. If you missed this one, you won’t want to miss what’s on his radar now.

  British jockey A.P. McCoy should’ve seen this coming.

At age 38, according to his Wikipedia entry, “McCoy has now ridden over 3,863 winners: more than any other National Hunt jockey ever, by a considerable margin.”

But on Wednesday during trials for a hurdle race, he took a spill from a horse “who had lost his way over fences this season,” reports the Telegraph. “McCoy landed awkwardly after being thrown high into the air.” He was taken to the hospital, where doctors could check out whether he’d cracked his breastbone.

The name of the horse? “Quantitativeeasing.”

  “To the reader who is complaining about the high prices in the Mile High City,” begins our mailbag today, “he’s got it made living in the U.S. with the reserve currency. He doesn’t know what expensive is until he travels overseas.

“I live in New Zealand, and we pay $8.00 for a gallon of gas. It has just come down from $8.50 over the summer months. Try food prices — chicken, for example, is about $5.00 a pound. Even lamb is cheaper outside of the country than it is here, and there are millions more of them than people. Fruit prices are crazy, including for the produce grown right here. A top-of-the-line cellphone is about $800. A new car is about $10,000 more here than in the U.S. for the identical model.

“I’m doing the same job here that I left in the U.S. (nursing), but the exchange rate is a killer. So prices are all relevant to where you are. He ought to be thankful he’s not here. You’d never hear the end of it.”

  “I worked for various government organizations for most of my life and retired from a state university in Texas,” writes a reader revisiting the topic of how many sociopaths work in government.

“I agree that there is an almost universal bias in government to hire sociopaths, but this is mostly in the managers that run our government. These managers hire people in their own image to be managers. The main focus of governmental managers is to spend as much money as possible, because this gives them power and larger salaries. The more people you supervise and the more money that you manage enables you to make larger salaries and have more power.

“These managers spend most of their time trying to figure out how they can get and spend more taxpayer tax contributions. At the federal level, they have even evolved the art of spending more money than they get in tax revenue by borrowing and printing money. And the rest of the bad news is that we let these a**holes set their own salaries, health and retirement benefits with little or no input from the taxpayers who pay the bills.

“By the way, there are some good employees in government who do good work, but most of them are not managers, because somebody has to do actual work, rather than spending all their time on schemes to spend more of our tax money.”

  “Does Chris Mayer have it wrong,” writes our last correspondent, “when he says that you can print money, but not new businesses and products? Washington is buying lots of 3-D printers. Maybe they don’t understand — you think?”

The 5: Hey, if they can even talk about a trillion-dollar platinum coin with a straight face…

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. You need zero trading experience to take part in our “Aspiring Traders Wanted” experiment. “In fact,” says Jonas Elmerraji, “the less you know about trading, reading charts or even the stock market in general, the better.”

Participation in the experiment is absolutely free… and you might surprise yourself how quickly you can build up your trading acumen — without staying glued to a screen all day.

But you won’t know if you don’t take part. Here’s where to sign up.


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