Energy & Commodities

Continuous Commodity Index Points to Rally in Gold & Silver

During the recent weeks we have seen commodities especially precious metals continue to drop in value. Market participant sentiment has become more bearish on commodities and couple that with a rising dollar it’s no wonder why we continue to see commodities as a whole fall in value.

Money has been flowing out of bonds at record levels this summer telling us most of market participants are feeling bullish on the stock market. This shift in sentiment of the masses are typical as they move their money from the risk on safer assets (bonds & commodities) and rotate into risk-on assets like stocks. While this is a bearish (contrarian sign) stocks could easily continue to rally for an extended period of time and possibly several more months before they actually top out.

LET’S TAKE A LOOK AT THE FINANCIAL MARKET BUSINESS CYCLE DIAGRAM:

Bond prices have been falling for months and they typically lead the stock market lower. I feel we are starting to enter the phase where stocks will soon top and head lower also. Once this starts money will naturally flow into safer assets that are more tangible like commodities.

Keep in mind this cycle is very slow moving and rotation from one phase to another takes months. This is a process not an event but it is still very tradable.

JMCycle

Precious Metals

Now let’s fast forward to precious metals both gold and silver are likely to do in the next couple months. If you review the charts below you will see gold and silver bullion prices are looking primed for a bounce/rally from these deep oversold levels.

GOLD WEEKLY PRICE

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SILVER WEEKLY PRICE

silver

TAKE A LOOK AT A BASKET OF COMMODITIES THROUGH THE GCC ETF.

GreenHaven Continuous Commodity Index Fund (GCC) is an Exchange-Traded Fund (ETF) that provides an innovative and efficient way to deliver broad based, diversified commodity exposure. It aims to achieve this by using futures contracts to track the Thomson Reuters Equal Weight Continuous Commodity Total Return Index (CCI). The CCI-TR is an equal weighted index of 17 commodities plus an additional Treasury Bill yield. Because of the equal weighting, GCC offers significant exposure to grains, livestock, and soft commodities and a lower energy weighting than many of its peers. In addition, GCC is rebalanced every day in order to maintain each commodity’s weight as close to 1/17th of the total as possible.

So, knowing metals are 24% of the index it bodes well for a bounce in the overall commodity index. Keep in mind this report is only focusing on precious metals, but many other commodities look ready to rally also like natural gas.

GCC-H

GCC – CONTINUOUS COMMODITY INDEX FUND WEEKLY TRADING CHART

The chart below shows a very bullish 4 year chart pattern. At the very minimum a bounce to the $29 is highly.

gcc

COMMODITY BASKET TRADING CONCLUSION:

In short, commodities as a whole remain in a down trend. Until they show signs of real strength I will not be trying to pick a bottom. Several commodities are starting to look oversold and ready for a bounce like sugar, coffee, copper and natural gas.

Last month I talked about how a major market top is likely to unfold during the second half of this year. I still believe this to be true. But keep in mind these major market tops which only happen every few years are a MAJOR PROCESS. They take time to form and often we will see a series of new highs followed by quick sell offs as the market gets more people long as they big money distributes their shares/contracts into the new money rotating into the market.

If you want more reports and trade ideas join me at www.GoldAndOilGuy.com

Chris Vermeulen

 

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Abelications

There’s a three year downward trend in Chinese imports underway. The chart below, from Nomura Global Economics, shows the trend quite clearly.

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China’s exports and imports declined again in June. Exports fell 3.1 percent yoy – the most since the global financial crisis in 2008 – while imports dropped 0.7 percent. The poor June report follows a May collapse in export gains – fake invoices had inflated data for the first four months of the year, the bogus data enabled exporters to evade currency controls and bring extra money into the country. Trade growth might come in below the government’s target of eight percent for the year. 

  • The governments self imposed target of 7.5 percent economic expansion is also at risk: 
  • June’s export growth was down from May’s year-on-year gain of 13.5 per cent and import growth was down from 8.2 per cent.
  • China’s global trade surplus contracted by 12.4 per cent compared with a year earlier to $27.1 billion. Exports were $174.3 billion while imports were $147.2 billion.
  • Growth in exports to the United States, China’s biggest foreign market, fell to 1.8 per cent from May’s 3.5 per cent. Exports to the 27-nation European Union contracted 3.9 per cent.
  • The trade surplus with the U.S. contracted by 15.5 per cent from a year earlier to $17.5 billion. The surplus with Europe shrank 20.3 per cent to $10.2 billion.

China’s communist leaders want to pursue a slower, more self-sustaining growth model based on domestic consumption, this model reduces reliance on trade and investment. China can handle slowing exports as long as the slowing is accompanied by rising internal consumption – a successful switch from being an export led economy to a consumer one. But since the start of 2013 a very different scenario is taking place, one that’s definitely not under our dear communist leaders control, imports and exports are both dropping, Chinese trade is being gutted while Japanese exports are rising on higher shipments to the US and China.

How did this happen? 

To put it as simply as possible; a depreciation of the Japanese yen is making Chinese exports less competitive in the world market and Japanese imports more attractively priced for Chinese consumers. Less Chinese made goods are being bought at home and abroad.

Japans monetary policies – dubbed Abenomics (deregulation and economic stimulation by easy monetary and fiscal policies), after Japanese prime minister Shinzo Abe – are waylaying communist plans.

Japan, the world’s third largest economy, is currently an economic ray of sunshine – the Japanese economy grew at an annualized 4.1 percent in the first quarter and their stock market is soaring. Abenomics goal is to end a long miserable decade and a half of deflation by kick starting the economy, this will happen because of massive yen creation. The fiat balloon will induce consumers to spend and corporations to reinvest profits, convinced by a rising stock market and surging exports that all is well. 

The flood of fiat has depreciated the yen, over the first six months of 2013 the yen weakened the most against the U.S. dollar since 1982. The yen also dropped 12 percent against the euro and seven percent against the sterling, threatening European trade. 

Japanese efforts are starting to pay off as factory output is rising (the most since December 2011), retail sales are slowly climbing and some inflation is starting to creep into consumer prices. The weaker yen is drawing investment away from emerging markets and toward Japanese equities – the Nikkei 225 has been soaring. 

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The Bank of Japan has driven down the yen against the dollar over the last six months in an effort to increase exports and cut imports into the country resulting in Japan throwing a very large monkey wrench into Chinese plans. As we can see Abenomics is having severe Abelications (Abe-li-ca-tions), but the worst is yet to come –  the ignition of a brutal currency war in Asia. 

China will, in response to Japans deliberate and massive yen depreciation, allow its currency the yuan to depreciate forcing all other Asian countries (and the EU and Uk) to do the same to keep their exports competitive with China’s and Japan’s. 

Currency War – when countries around the world start competing (competitive devaluation) to make their currency cheaper than everyone else’s as a way to boost trade.

So how do currency wars get started? From Wikipedia comes the following:

Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets…The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.”

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Japan started a currency war with China and the world. But not with the U.S., the U.S. will be the beneficiary of all the tit-for-tat repercussions with a strong dollar.

 

 

Opportunities

There’s an investment opportunity in this mess that I’m paying attention to: uranium.

Screen shot 2013-07-12 at 9.21.43 AMHow do I get uranium out of a weaker yen and a stronger dollar? The cost of Japanese imports is really climbing, month after month of increases, remember energy imports become more expensive when you weaken your currency against the world’s reserve currency, the U.S. dollar, and Japan has been obliged to pay more for dollar denominated energy purchases – as has everybody else.

Japan imports most of its energy and utilities are being forced to keep thermal power stations running at full capacity to make up for the closure of most nuclear power plants since the Fukushima Daiichi incident in March 2011.

Screen shot 2013-07-12 at 9.21.53 AM

 

There’s no way to reduce fuel import volumes, the resulting massive cost to the Japanese economy and return to a trade surplus, unless they turn back on their nuclear power plants. And that, at the same time the HUE ends, will kick start the ‘Global Civilian Nuclear Renaissance.’ That’s why I think current uranium investments are going to benefit from Abenomics.

 

Conclusion

Japan has 55 nuclear reactors using 21.3 million pounds (mlbs) of uranium – 12-13 percent of annual global uranium demand. A six-fold increase in China’s installed nuclear capacity is expected by 2020. The HEU agreement ends late in 2013 and removes 24 million pounds of uranium supply from the market. 

Current annual global uranium consumption is 190 million pounds, annual global mine production is 140 million pounds, inventory draw downs, the down-blending of weapons-grade material and the enrichment of tails material are a large portion of supply and currently make up the difference.

However with inventories dwindling and the HEU agreement ending, the drying up of most non-mining uranium supply sources seems certain. 

NuCap Ltd., a London-based industry consultancy, says the annual consumption of uranium will increase to 265 million pounds by 2020

According to The Australian newspaper global demand for uranium fuel is going to increase to 280 million pounds U308 by 2030.

A near term uranium producer is definitely on my radar screen, have you got one on your screen?

If not, maybe you should.

Richard (Rick) Mills

 

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:

WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, ninemsn, ibtimes, businessweek.com, moneytalks and the Association of Mining Analysts.

If you’re interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com

If you are interested in advertising on Richard’s site please contact him for more information, rick@aheadoftheherd.com

 

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Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified. 

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

 

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

 
 

 

 

 

 

 

 

 

Global Oil Slick Update

Oil Bears Flummoxed

We recently posted an update on crude oil, entitled “What’s Up With Crude Oil?”, in which we shared our technical and sentiment observations on the oil market, as well as our admittedly rather limited knowledge of the market’s fundamentals (a number of charts illustrating the fundamental backdrop can be found in this previous article). The in our opinion at the time most important and noteworthy fact was that in spite of the market’s healthy technical condition, it was accompanied by a lot of anecdotal evidence showing widespread incredulity at the market’s strength. It was no exaggeration to speak of a deeply ingrained bearish consensus. We wrote:

“The main reason to talk about crude oil these days is its stubborn refusal to go lower. There is a fairly widespread anecdotal consensus that prices will – nay, must – come down. In fact, only veryrecently the US Energy Information Administration (EIA) opined that the sharp increase in US domestic production portends lower prices in the future. It presumably had to point to the future because it is definitely not producing lower prices in the present. In fact, Monday’s close in spot WTI at just above $97/bbl. was right at the upper end of its multi-month range and only a hair away from what would be a noteworthy technical breakout. This is evidently not what the consensus would expect, especially in view of the fundamental data accompanying this show of strength.”

WTIC-daily-annot

……read the rest HERE (be sure to read the conclusion)

Grandich: Things

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Peter Grandich Interview: “The reward now is greatly more to the upside than the downside for gold”

Q:    What is your outlook for the equity markets in the next 12 months?

A:    I think the most recent move by the FED is quite telling and could come back to bite them in a big way.

…..read the whole interview HERE

WTI Oil Surges to 15-Month High….

Crude continues to surge on a follow through after breaking through a weekly resistance level last friday.

“Everything is going for the market right now,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund that focuses on energy. “Refineries are operating at higher rates, which is increasing demand for crude. At the same time, gasoline demand is up above 9 million barrels a day for the first time in a long while.”

Screen shot 2013-07-10 at 2.48.24 PMThe U.S. benchmark oil extended its rally after breaching a technical resistance level on the weekly chart, according to data compiled by Bloomberg. Futures settled above $103.39 a barrel, the 61.8 percent Fibonacci retracement of the decline to $32.40 in December 2008 from an intraday record high of $147.27 in July that year. Investors typically buy contracts when prices exceed technical resistance.

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……..get the whole crude picture HERE