Tuesday, October 6, 2009
Gold Surges Past $1040, Miners on a Tear
It is 5:46 AM, grab a cup of joe and a bucket. We got a sage brush fire in precious metals buckaroos, be right back. Phew! Gold surged past $1040 on the London Exchange this afternoon (their time), what's going on? The present rally started yesterday with a falling U.S. dollar and it looks like we're far from done today. Gold price touched $1033 during the Bear Stearn's meltdown in March of last year and has not returned until today. It is believed by some that when we push past "Bear Stearn's Gold", the yeller stuff can head much higher. The ole Colonel is standing by his bet that we see $1050 before Christmas; maybe at this pace, a lot sooner.
The buzz yesterday said the fire started when economist Nouriel Roubini (aka Dr. Doom) commented on CNBC business news about a global "wall of liquidity". Others claim it is just "technical buying" triggered by the dollar's descent toward new 52-week lows. You can judge for yourself, the Colonel has included a video of the interview at the bottom of this blog (scroll down and you can meet the good doctor yourself). The report has covered Dr. Doom several times before (Moly Hits the Magic Number, Dr. Doom Speaks to Miners) and you'll remember his present popularity is based on his uncanny predictions of the global financial mess several years ago.
His view which is shared by others such as Dr. Mohamed El-Erian of Pimco (Unemployment Jumps to 9.7% but...) addresses all the money that central banks have pumped into the global economy. This so-called "wall of liquidity" must find some where to go and riskier asset classes such as equities and commodities have been a popular target for easy money. According to Dr. Doom, if this goes unabated, new bubbles will form and history sings another chorus to an old familiar song. If you're in a hurry, the key parts of this interview occur at 4:20 minutes and a memorable remark complete with his unique accent and hand gestures at 6:14, "...asset prices go through the roof!"
To reverse the trend, central banks must raise interest rates. The concern is that if it occurs to quickly it might kill our fledgling recovery and send us on the road to "double-dip" recession or worse. Ironically, Australia which has a commodity-sensitive economy just raised their rates today:
Australia on Tuesday became the first G-20 country to raise interest rates since the start of the financial crisis, breaking the ice for other relatively healthy economies to follow suit. The surprise move -- which came earlier than markets expected -- is a signal that the great global monetary loosening is beginning to reverse. Australia's rate increase "is a game changer," says Sanjay Mathur, economist at RBS in Singapore. "No central bank wanted to be seen as the ugly duckling and be the first. Now that they've done it, theoretically it paves the way for tightening by other central banks. (WSJ, 10/6/2009)
This has put additional pressure on the dollar and is another reason behind today's spike in gold. Stay tuned buckaroos, this movie is getting exciting (or scary?).
Enough talk, let's walk the walk:
CAUTION: 4-WD is ON - the VIX or "fear index" is headed south with the gold rally but is still above 25. Expect to experience more off-road conditions in the markets (what's this?)
Yellow light is ON for possible adverse regulation/legislation (mercury emissions)
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is up $0.55 in early trading to $70.96 (November contract); Gold is up $25.4 to $1042.6 (December contract, most active); Silver is up &0.825 to $17.360(December contract); Copper is up $0.0475 to $2.7745 (December contract); Molybdenum is steady at $13.6.
The DOW is up 147.14 points to 9946.89; the S&P 500, up 17.70 points to 1058.16. The miners are crazy:
Barrick (ABX) $39.00 up 5.66%
Newmont (NEM) $46.47 up 7.57%
General Moly (Eureka Moly, LLC) (GMO) $3.20 up 2.89%
Freeport McMoran (FCX) $70.03 up 4.04% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks mixed, (a "tell" for General Moly):
Nucor (NUE) $45.57 up 0.15% - domestic steel manufacturing
ArcelorMittal (MT) $36.34 up 1.99% - global steel producer
POSCO (PKX) $103.30 down 0.42% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 2.78% to $1,219,033.80 (what is this?).
Headline Photograph by Mariana Titus