Friday, November 20, 2009
The Dollar, The Devil & The Deep Blue Sea
It is 5:55 AM and we've got the break room re-stocked with that famous Raine's TGIF coffee. The pot is brewing Scott's Red Label brand. If your nerves can't take it, the Colonel will gladly heat you up some Blue Label. I imagine most governments around the world are on the Blue brand caught somewhere between the Devil and the Deep Blue Sea. Most face a difficult decision: if they cut off their fiscal stimulus too soon, we could fall back into recession; if they lolly gag, inflation and high interest rates could be at our front door in 2011. That's at least the opinion of French banking giant, Societe Generale.
These are favorable conditions for gold price which has been riding high on the Deep Blue Sea while the dollar searches for Davy Jone's locker. Gold is bought as a hedge against paper currency weakness and it has also been a beneficiary of the recent carry trade that has sent the dollar lower and other assets higher. A "carry trade" is borrowing money at a low rate to invest in other asset classes that promise a higher return. Carry trade typically puts additional pressure on the currency borrowed. In the past, carry traders focused on Japan with their low interest rates but lately the United States has become the target of choice given the Fed's zero interest rate policy. There are no indications that this policy will change until there is improvement in employment and sustainable growth returns. In the meantime, the dollar will continue to dive deeper and gold will float higher.
Precious metals are historically famous for violent downward corrections of 10-20% or more but in this environment large players will step in to buy gold on the dips and that helps moderate down swings. These players are central banks trying to diversify their U.S. dollar reserves and mining companies like Barrick that are buying gold to reduce their hedge positions to take advantage of rising prices for future production. As the Report has said before, be glad you live in a community that has a gold mine or two in its backyard.
If this isn't enough to satisfy you in tough times, there is a hiring opportunity for miners in the Northwest Territories. Checkout this link:
N.W.T. diamond mine to hire 150 new workers
The Diavik diamond mine above the Arctic Circle is on the verge of hiring 150 new employees as it starts moving its operations underground in the new year. The Report has covered this operation in the past and it has been a featured destination on the History Channel's "Ice Road Truckers":
From Kenworth's to Diamonds to Kartika Trehan (10/20/2009, The Eureka Miner's Market Report)
Diamonds are a (Canadian) Miner's Best Friend (9/14/2009, The Eureka Miner's Market Report)
If the expected warmer than usual winter in Eureka has you blue, head north buckaroo!
Enough ice talk, let's walk the walk:
4-WD is OFF - the VIX or "fear index" is below 25, smoother road market conditions expected (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 down $0.81 in early trading to $77.24 (January contract, most active); Gold is up $1.3 to $1143.2 (December contract, most active); Silver is down $0.100 to $18.355(December contract); Copper is up $0.0095 to $3.0905 (December contract); Molybdenum is steady at $12.00
The DOW is down 40.13 points to 10292.31; the S&P 500 is down 6.16 points to 1088.74. The miners are still grumpy:
Barrick (ABX) $43.64 down 1.58%
Newmont (NEM) $52.07 down 1.12%
General Moly (Eureka Moly, LLC) (GMO) $2.31 down 2.94%
Freeport McMoran (FCX) $83.67 down 1.24% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are mixed, (a "tell" for General Moly):
Nucor (NUE) $40.76 down 1.12% - domestic steel manufacturing
ArcelorMittal (MT) $37.82 up 0.02% - global steel producer
POSCO (PKX) $119.11 down 0.20% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 1.14% to $1,267,935.64 (what is this?).
Photographs of Raine's Market by Mariana Titus