Scaling new peaks

Gold opened the 2008 trading year by breaking over, and then rising beyond the pinnacle it achieved last year, indeed in any year. A massive surge in crude oil (sparked by the latest violence in Nigeria) to its own record of $100 a barrel and a markedly softer US dollar (last seen at 75.93 on the index) on the heels of the ISM data for last month's industrial activity (read: anemic) contributed to the metal's successful attempt at planting the flag on this market's Mt. Everest. Although conditions remained on the thin side as part of the trading crowd will not return until Monday, the move today suggests that funds may have made additional moves into bullion with Pakistan's situation remaining on edge and global investors obviously still nervous about financial markets as we begin the new year. The stock market certainly did not start 2008 on a reassuring note...(but, see below). No market was going to ignore triple-digit oil and weak industrial activity. Thus, the construction spending news got buried today, despite showing there is life remaining in the sector.

New York spot bullion closed substantially higher, finally fulfilling the 27 year old dream of gold bugs everywhere. The metal rose $23.40 to $856.70 bid, after ticking as high as $861.80 on the offer side intra-day, this, as market participants made the expectations they had expressed last month a reality. We can expect additional gains if the financial media disseminates the news and trend-followers pile into the market on speculative emotion. Silver gained 38 cents to $15.15 but remains under the threat of underperforming gold as demand for industrial uses hangs in the balance should an economic contraction become deeper than expected. Today's ISM data did not bode well for the silver camp as far as strong industrial offtake is concerned, and the metal will need fresh inflows of investment money to maintain here and try for more. Platinum on the other hand, showed no worries about users substituting it with palladium and rose an additional $11 to $1539.00 per ounce.

As the market replays the events that gave it notoriety back in January of 1980, we can certainly expect to hear ultra-bullish chatter pick up significantly and argue that this is 'only the beginning' of...something. The news clippings we saved from the era are also rife with confident predictions (some of them, by the same writers still in circulation today) of four-digit prices and more. For 1980 and 1981, that is. While there is no debate that price moves may now become highly unpredictable (in either direction) since we have waded into basically uncharted waters, the mere fact that speculative positions are approaching a quarter of a million contracts and that the addition of not too many more of them would tilt the market into heavily overbought (as opposed to just simply overbought) territory should also be in the back of the minds of latecomers to this party. Tread with utmost care. Or, as a classic (and continuing) gold bull (Ned Schmidt) just said: "Buy low, don't buy high." Hope he doesn't get labeled a 'bear' for merely stating the obvious.

We, on the other hand, will continue to bring you all sides of the gold story, pleasant reading, or not. It has been our task from the beginning to cover the less often publicized aspects and stories of the market. The rest is (as always) up to you, the individual reader/investor. With this in mind, let's take a look at what Marketwatch's Mark Hulbert sees in the contrarian catacombs these days:

"Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average gold-market exposure among a group of short-term gold timing newsletters. As of Monday night, the HGNSI stood at 66.1%. That's 25 percentage points higher than where this gold sentiment index stood one year ago.

To be sure, given gold bullion's strength during calendar 2007, during which a price of an ounce rose by more than $200, an increase in bullishness is entirely normal. Still, at 66.1%, the HGNSI is getting within shouting distance of levels that would indicate a lot of optimism and euphoria among the gold timers.

On the contrarian grounds that markets like to climb walls of worry, the stock market would appear to have a lot more upside potential than gold.

Note carefully that this forecast focuses on relative performance, and thus does not mean that gold will necessarily have a terrible year. The contrarian forecast for 2008 could turn out to be correct with both stocks and gold rising, for example, but with stocks rising even more.

And, by the same token, this forecast does not mean that stocks will necessarily have a great year. It could also turn out to be correct with stocks having a mediocre year, or worse, but with gold have an even worse year."

Wonder if Mr. Hulbert is vying for the MOTY award himself, by bringing his readers such potentially 'disturbing' news on the very day that gold makes a new high...

In the interim, watch the spectacle unfold. Such events do not appear to come by very often.

You might wish to visit www.kereport.com for and interview I did today with host al Korelin about gold and China. I hope you will find it informative. Thanks.

http://www.kitco.com/ind/Nadler/jan012008B.html

Gold price breaks 28-year record to hit new peak

Unrest in Pakistan, a faltering dollar and surging oil futures sent the price of gold soaring to a record high on Wednesday, beating its previous highest level set 28 years ago.

The precious metal rose to 859 US dollars, smashing its peak of 850 US dollars an ounce reached on January 21, 1980.

It later slipped back to 855.28 US dollars on profit-taking.

Price movements were slightly exaggerated by the lightness of holiday trade, which meant large transactions could influence the market more than usual, analysts said.

"Although conditions remain on the thin side ... (gold's) move suggests that funds may have made additional moves into bullion with Pakistan remaining on edge and investors nervous about financial markets," said Kitco Bullion Dealers' analyst Jon Nadler.

"A sharp rise in crude oil ... and a softer US dollar" contributed to gold's rally, he added.

Political unrest in Pakistan has led to interest in gold because the precious metal is regarded as a haven in troubled times.

Gold rallied "as the dollar remained in negative territory while safe-haven related buying continued to be seen in reaction to violence in Pakistan," said James Moore of thebulliondesk.com.

Gold prices were also winning support from a weak dollar, which fell against the euro on Wednesday in the wake of disappointing US manufacturing data, dealers said.

A falling US unit encourages demand for dollar-priced commodities such as gold because it makes them cheaper for buyers using stronger currencies. Higher oil prices also encourage the buying of gold.

Gold is seen as a defence against inflation, which is being driven in many countries by higher oil prices.

http://news.smh.com.au/gold-price-breaks-28year-record-to-hit-new-peak/20080103-1jxx.html

GOLD BULLION - A BELATED CHRISTMAS GIFT

I am spending a few days of the Christmas break at a village along the coastline of the Cape Town Peninsula. It is quaint, picturesque and simply an ideal location for enjoying quality time with the family. The only drawback is that it does become quite windy on occasion - at best not a highly predictable event. This reminds me of the erratic behavior of gold bullion - you just never know with what action the yellow metal is going to surprise you next, making it infamously difficult to predict short-term movements.

And true to form, just as traders were bargaining on a quiet Christmas period, gold again startled with a $15 jump, taking the price well clear of the $800-level. Interestingly, gold has never in its history recorded a month-end price above $800 and only closed above this level on two days during its 1980 surge, namely: $830 on January 18, 1980, and $850 on January 21, 1980. That, however, represented a blow-off with the price plunging to $737.50 a day later and falling further to $659 by the end of January.

It would seem that gold bulls may very well have reason next week to toast bullion saying good-bye to 2007 having achieved the $800 month-end milestone. There is, however, quite an important difference between 1980 and the present situation. In 1980 gold was in a parabolic rise, whereas since the low of $250 in 2001 gold has been rising methodically, mapping out consistently higher lows.

The gold price has not only strengthened in US dollar terms, but has in fact been appreciating in most currencies - an indication of increased investment demand. The following graph and table (not yet reflecting the post-Christmas rally) clearly illustrate this phenomenon.

The pressing question is how sustainable bullion's uptrend is. Although the technical picture indicates a primary bull market, the fundamental situation offers both bullish and bearish arguments.

The arguments in favor of a rising gold price have been well documented and include: the possibility of ongoing pressure on the US dollar, increasing global inflationary expectations, a surging oil price, minimal new mine production, and the fact that central bank sales are capped through the Central Bank Gold Agreement (CBGA II).

The bears, on the other hand, point to: record long speculator positions that have in the past been strongly correlated with gold price corrections, potentially lower fabrication demand from India (as a result of the higher price), and a slowdown in producer de-hedging as the global hedge book diminishes. Additionally, a seasonally weak period is approaching from February to April as illustrated by the graph below.

I have over the past few months often conveyed my bullish stance on gold bullion and gold-mining stocks. Examples of these articles include: "Gold: forwards and upwards" (September 14, 2007) and "Smart money bets on surging gold price" (September 4, 2007). I see no reason to change this position - from both an absolute and safe-haven point of view. I would, however, caution that one should not chase a rising gold price in an attempt to stock up on the various gold-related instruments. Rather bide your time and wait for the short-term corrections that occur regularly, perhaps coinciding with the advent of seasonal weakness in a few weeks' time.

The final word goes to George Bernard Shaw who said: "The most important thing about money is to maintain its stability… You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."

http://www.gold-eagle.com/editorials_05/duplessis122907.html

A New Ballgame

Summary and Conclusions

Almost unanimously, the indicator charts are signalling the imminent emergence of a new ballgame.

Commodities in general, and oil and gold in particular have already broken upward, whilst the Industrial Equity Indices and the US Dollar are showing nail biting indecision.

The oil price is looking dangerously close to breaking up through the $100 per barrel level; and also looks like it is about to break up relative to gold.

Whilst it could be argued that the patterns on the Industrial Charts are bearish, there is an underlying subtlety which cannot be ignored - specifically, underlying volume patterns are at odds with the price patterns. Given this anomaly, the industrial equity charts may surprise many technical analysts by breaking "up" notwithstanding the apparently bearish patterns.

There is no question that such a development would be counterintuitive. If the Industrials break up to follow the key commodities, then the only logical explanation which this analyst might offer is that the economy will split itself into two sectors:

The investment sector will begin to show signs of inflation as too much paper money chases too few investment opportunities

The Industrial/Commercial sector will begin to show signs of stagflation as prices charged to customers by businesses rise in the face of stagnating or falling volumes. Profits will rise in dollar terms but will fall in real terms. Should this happen, it will have serious implications, in that it might be a harbinger to a slowing "velocity of money". In turn, a slowing velocity of money could eventually bring the US (and world) economy to its knees.

The US Dollar looks like it is about to come under renewed pressure and US interest rates might begin to rise as the market "forces" an adaptation to inflationary pressures.

Unless something structurally different begins to emerge, in context of rising inflation, rising interest rates, falling property prices and a heavy debt load, the US consumer in particular is not facing a particularly happy medium term future.

Read more...

http://www.gold-eagle.com/editorials_05/bloom122907.html

Heebner Sees Fund Gains More Challenging as U.S. Economy Slows

Kenneth Heebner, the top-ranked U.S. stock fund manager, said grain and steel shares will be among the biggest gainers in 2008 as a weaker economy makes investing more challenging.

``The U.S. economy is slowing down, other parts of the world are growing,'' Heebner said yesterday in a Bloomberg Television interview in Boston. ``I am more conservative at this point.''

Heebner, managing partner of Capital Growth Management LP, said he'd be happy with a 10 percent to 20 percent return for his $3.5 billion CGM Focus Fund next year, after an 83 percent jump in 2007. That's the biggest increase of any diversified equity manager, according to Chicago-based research firm Morningstar Inc.

``As I look into '08, I won't have a year like this,'' Heebner, 67, said. ``It is a more challenging environment than the last year.''

Heebner, who has run CGM Focus since its inception in 1997, is bullish on agricultural shares after corn prices advanced 17 percent this year on demand for ethanol, and soybean prices soared 80 percent. Wheat prices surged 82 percent as demand outpaced production.

``Farming will be permanently elevated,'' Heebner said. ``Grain prices will be more elevated, and that is benefiting a lot of U.S. companies.''

Heebner said he bought shares of Moline, Illinois-based Deere & Co., the world's largest maker of tractors and harvesters, which rose 90 percent in 2007. He also owns Luxembourg-based ArcelorMittal, the world's largest steelmaker, whose stock climbed 81 percent.

Steel Forecast

China, the largest steelmaking nation, has slowed approval for new mills to limit pollution and its trade surplus.

``As they slow the production of steel in China, we could see stronger steel pricing,'' he said.

Steel prices in the U.S. may rise to more than $600 a ton in the second quarter of 2008, according to Goldman Sachs Group Inc. Hot-rolled steel sheet, used in cars and appliances, fell 5.8 percent to an average $532 a metric ton in November from $565 a year earlier, according to Purchasing magazine.

CGM Focus held 2.9 million shares of ArcelorMittal as of Sept. 30, its seventh-biggest holding. Heebner also owns shares of Pohang, South Korea-based steelmaker Posco, which gained 83 percent this year.

CGM Focus's five biggest holdings at the end of the third quarter doubled on average in 2007. The largest, U.S. oilfield- services provider Weatherford International Ltd., surged 69 percent.

Sold Vale

Heebner said today that he sold his stake in Brazilian mining company Cia. Vale do Rio Doce, which had been the fund's second-biggest holding, after the shares more than doubled.

``They will be raising the price 30 percent or more next year,'' Heebner said, referring to what Vale charges for iron ore. With the increase reflected in the company's stock price, `I don't know anything more about CVRD than anyone else that makes it exciting,'' he said.

Cnooc Ltd., China's biggest offshore oil producer, is the fund's third-largest holding. Cnooc advanced 75 percent this year. Russian wireless carrier OAO VimpelCom and Canadian fertilizer maker Potash Corp. round out the top five. Vimpelcom rose 175 percent this year, while Potash tripled.

As of Sept. 30, the fund had 35 percent of assets in oil and gas production and services companies, 17 percent in mining stocks, and 9 percent in iron and steel producers. Engineering firms accounted for 11 percent of assets.

Shorting Countrywide

Heebner has also profited from declines at Countrywide Financial Corp. and Sears Holdings Corp. as mortgage lenders and retailers are hurt by a slump in housing. CGM Focus Fund tripled its short position in Countrywide to 12.3 million and sold short 1.3 million Sears shares, according to a Nov. 21 regulatory filing. A short sale is successful when shares that were borrowed are sold then bought back after the price has fallen.

Heebner, known for his rapid moves in and out of stocks in a few industries, earlier this year dumped his 15 percent stake in investment banks and brokerages, saying they would be hardest hit by the global credit freeze that began when delinquencies on mortgages to the riskiest borrowers rose.

The 30-member Standard and Poor's 500 Diversified Financials Index has declined 21 percent this year, dragged down by companies such as Citigroup Inc., Merrill Lynch & Co. and SLM Corp.

Financials Outlook

The outlook for financial stocks has improved, although earnings will be hurt next year as clients such as hedge funds and private-equity firms scale back their activities.

``The earnings from private equity and hedge funds are much diminished,'' he said.

Heebner concentrated on homebuilders from 2001 to 2005 and airlines in the late 1990s. He also bet against technology and telephone stocks in 2000, prior to the collapse that slashed the Nasdaq Composite Index by 71 percent from March of that year through December 2002.

The money manager, a Philadelphia native, began his career in 1965 as an economic forecaster with consultants A&H Kroeger in New York after receiving a master's degree in business from Harvard Business School. He co-founded Boston-based Capital Growth Management in 1990.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEKOGAzxF1E0&refer=home

Gold Rally: Gold Closes At Seven-Week High Of $842.70

Friday, December 28, 2007 2:37:41 PM - Gold finished at its highest level in seven weeks on Friday in U.S. trading. Bullion for February delivery closed at $842.70, up $10.90 for the day. Bullion finished up for the fifth straight session and ended the week up $27.30 from last Friday's close.

The precious metal's hedge value was boosted by further weakness for the U.S. dollar. The greenback extended its 2 1/2 week low against the euro, continuing a downward move that began Tuesday evening. The buck also fell to a 10-day low against the British pound and a six-week low against the Canadian dollar.

Gold continued its rally on Thursday and added $2.30 on the session. Trading took place following the assassination of Pakistan Prime Minister Benazir Bhutto in a suicide attack, which led many traders to flee to gold as a hedge against uncertainty. The metal climbed $13.00 an ounce in Wednesday's session and has moved above a recent trading range. Bullion had been generally range-bound for most of December before the recent advance.

On the economic front, a report released by the Department of Commerce on Friday showed that new home sales fell 9.0 percent to an annual rate of 647,000 units in November from a revised October rate of 711,000 units. Economists had expected sales to fall to a 715,000 unit rate compared to the 728,000 unit rate originally reported for the previous month.

Friday morning, the National Association of Purchasing Management - Chicago released its report, which showed that the Chicago purchasing managers index rose to 56.6 in December from 52.9 in November, with a reading above 50 indicating growth in the sector. Economists had expected the index to edge down to about 52.0.

http://www.rttnews.com/FOREX/FXTopStory.asp?date=12/28/2007&item=9