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“It was the best of times, it was the worst of times,” Charles Dickens famously wrote. That certainly describes markets nowadays, doesn’t it?
Heck, Ben Bernanke chopped both the fed funds rate and the discount rate by 75 basis points yesterday — another indication of just how bad things have really gotten.
In the “worst of times” column:
The dollar, which is on the Slip n’ Slide of doom! It hit new lows against the euro and multi-decade lows against the yen this week.
Where are the best of times, you ask? In commodities investments! We’ve recently seen $111-a-barrel oil, $1,000-an-ounce gold and $21-an-ounce silver. This is no great surprise: As anxiety and panic reign on Wall Street, commodities (i.e. “real assets”) move higher as investors rush to safety. While commodities have pulled back from their highs, it’s probably a pullback you can buy.
However, not all metals are created equal. There are some, one in particular, that I definitely like right now, and at least one that I wouldn’t touch.
So sit back, lend an ear, and let me tell you a tale of two metals …
The Best of Metals: Gold
My top pick among not just metals, but all commodities, is gold. Reason: I firmly believe it’s in a powerful up-trend.
And sure enough, gold showed the most strength on Monday when traders were selling EVERYTHING else — stocks because financials are going up in smoke, and commodities to cover their losses in financials.
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Plus, there are the bullish long-term forces driving gold higher as well. Forces including …
Bullish Long-Term Force #1:
The Supply-Demand Gap
Global spending for the exploration of nonferrous metals (mostly gold and silver) hit $9.99 billion in 2007 — up 33% from the previous year and way, way up from the $1.9 billion spent in 2002. Despite that, AND soaring prices, gold production actually dropped to a 10-year low.
Why is production falling while spending and prices are rising? Because for decades, there was under-investment in exploration, and it can take seven to 10 years to bring a new mine on line. The dearth of spending for so many years has opened a large gap in exploration and development.
Gold production may go up a little this year, if everything goes right. The problem with mining is that things often go wrong.
And demand isn’t going to wait …
Bullish Long-Term Force #2:
Gold ETFs are buying big-time!
The streetTRACKS Gold Shares ETF now holds 653 metric tonnes of gold. This puts it far ahead of many Central banks, including those of the Netherlands, China, Russia, as well as the European Central Bank.
Add in gold demand from other ETFs around the world and ETFs are quite a force. And they’re going to get bigger. The World Gold Trust, the sponsor of the world’s largest gold ETF, forecasts a 30% increase in their gold ETF products this year.
According to data from the World Gold Council, jewelry demand is rising as well, despite higher gold prices. And demand from the Middle East and Asia is just starting to hit its stride.
Bullish Long-Term Force #3:
The Swooning U.S. Dollar
I take no joy in saying this — I have greenbacks in my wallet, too — but the U.S. dollar is being beaten so badly that one of these mornings I expect to turn on the TV and find out that Treasury secretary Hank Paulson has taken Ol’ Greenback out behind the shed to shoot it and put it out of its misery.
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Since the Bush administration took office, the U.S. Dollar Index has tumbled 36%. It’s down more than 6% just this month! Recession fears are driving the greenback lower as jobs disappear, home prices fall, consumer confidence plummets, and big financial institutions go belly-up.
And this latest fiasco with Bear Sterns is an indicator that the dollar could go downhill in a hurry. The Fed is putting itself on the hook for all the “toxic waste” debt that the big investment banks are sitting on; accepting this paper as collateral for loans to prevent the banks from becoming insolvent.
How can they do that? By cranking the printing presses into overdrive!
You can gnash your teeth about the Good-Time Charlies in Washington spending your money so freely, or you can just do the smart thing and buy gold.
We recently saw crude oil get back to its inflation-adjusted high from the 1970s oil crisis. Do you know how high gold would have to go to get back to its inflation-adjusted high? $2,271.59! I think gold has a bit longer to run!
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One way to play it is through the big daddy of the gold exchange traded funds, the GLD. And since the current financial crisis will likely get worse before it gets better, this might be one of the times when you want to own gold bullion.
Gold isn’t your only choice, of course. While the yellow metal is up 19.3% so far this year (through Monday’s close), copper is up 22.4% … nickel is up 23.4% … and silver is up 36.3%. Most metals are GREAT investments, and should remain so for the rest of the year.
However, you should be aware of the other side of the coin …
The Worst of Metals: — Platinum
It was just a month ago that I wrote about how hot platinum was.
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South Africa produces 80% of world’s platinum. Power shortages in that country cut platinum production by 16% in January. No wonder platinum surged 36% this year through the end of last week.
But the wheel turns, and now the white-hot metal is cooling off big-time. Going forward, it could be in for a precipitous drop.
The demand picture for platinum hasn’t changed much since I wrote about it back in February. What is changing is supply and speculator sentiment.
The South African power utility, ESKOM, says it is coming to grips with the power shortage. What’s more, South Africa is so concerned about the hard times for miners that it may drop plans to impose a royalty tax on mining companies. And lower taxes may encourage higher metal production.
This doesn’t affect the short-term outlook on platinum, of course. But it is enough to send skittish hedge funds piling OUT of platinum the same way they piled in just a couple months ago.
And technically speaking, platinum’s chart is sounding a big “sell” warning. It broke through support, which then turned into overhead resistance. It has weakness down to about $1,650, and perhaps lower.
Of course, this is only a short-term outlook. Next month, the lights might go off in South Africa again and the government there could decide platinum miners need to pay MORE taxes. And then we can ride the metal higher again.
Because that’s the thing about metals — nowadays, even the worst of them is better than the best financial stock!
Good luck and good trades,
Sean
P.S. Don’t underestimate the powerful forces at work in the markets! Instead, learn all you can and prepare your portfolio immediately. I urge you to start by watching the FREE online presentation that Martin, Larry and I just posted to the Internet. It will tell you all about the biggest threats to your investments, and the best ways to protect yourself — and potentially profit — from the landmark events unfolding right now. Don’t delay … view it right now. Just turn on your computer speakers and click here.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, Julie Trudeau, and Dinesh Kalera.
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