Wednesday, July 25, 2012

Fed Appears Ready to Stimulate

Although it could go either way, it's increasingly likely the Federal Reserve and Ben Bernanke are could act sooner rather than later in attempts to stimulate the economy with another round of quantitative easing.

The market responded to the news by jumping in the morning, pulling back as the day went on. The DJIA closed the day at 12,657.05, jumping 58.73, or 0.47 percent.

The NASDAQ didn't get much help, as Apple (AAPL) and Radio Shack (RSH) took big hits on disappointing earnings. It closed at 2,854.24, losing 8.57, or 0.31 percent.

For the S&P 500, it closed slightly down at $1,337.89, falling 0.42, or 0.03 percent.

Not unexpectedly, commodities jumped on the rising expectations of a sooner than expected stimulus, with gold, silver, copper and oil all settling up on the day.

Gold closed at $1,603, up $27.30, or 1.73 percent. Silver climbed to finish at $27.285, jumping $0.47, or 1.77 percent. Copper ended the session at $3.385, inching up $0.03, or 0.95 percent. Oil closed at $90.669998, up $0.61, or 0.68 percent.

The growing weakness of the U.S., European and Chinese economies has put pressure on the Fed to attempt to get the U.S. economy growing again, as the pace it's currently at isn't considered enough to strengthen it enough to grow on its own.

There is no longer a question of if the Fed will move, if some still believed that was the case (many oddly enough still do), but rather of how quickly to move and with what mechanism.

It's most likely it'll acquire mortgage-backed securities, but that's not a surety. Now that the economy is continuing to sputter, the Fed will probably attempt to make a statement by whatever means is uses to try to support the economy in a way that will inspire confidence. Anything too small would possibly be ignored or more detrimental than not doing anything at all.

For some time it was believed the Fed would wait until September before announcing any stimulus, but that is increasingly unlikely as each day goes by and pressure mounts for something to be done in light of its next meeting starting on July 31.

Now that the assumption the Fed will moved shored up the markets after three straight days of triple-digit losses, it's even more likely we'll see some action taken very quickly.

What is challenging for the Fed, and increasing the pressure on the institution is, do they wait until September and risk being perceived as weak and behind the times if the economy continues to tank, or do they wait for a couple of months to see which direction the economy goes.

I think the failure risk is too great for the Fed to wait. But we'll find out in a few days either way. My guess is they'll announce another round of stimulation next week.

Friday, July 13, 2012

China Growth Down for Sixth Straight Quarter

Growth in China fell for the sixth quarter in a row, dropping to 7.6 percent for the period. That's the lowest level since the first quarter of 2009.

While it was a little better than the market had concerns over, it was still down enough to keep the inevitable stimulus for that country alive, even as Europe and the United States will soon implement another round of quantitative easing.

That's good news for gold, silver, and some other commodities, as it certainly will push up the price of the metals in a big way, rewarding patient investors.

Gold and silver are positioned well with the economic decline, as they'll go up in price without a doubt because of the resulting fall in the value of the U.S. dollar, and the assumption the buying up of more bonds will help the economy.

It won't. But many traders will use it for an opportunity to push up the value of silver and gold, which will pull up the prices of base metals as well.

Some are spinning this as a triumph, which has taken the pressure off of China's need to aggressively stimulate its economy.

Assuming the numbers are fairly accurate, China, as do a number of nations, faces the problem of overestimating the health of their economy, which would result in its taking too long to respond to a weakening economy.

If that's what happens, the stimulus measures taken by a number of governments would be even more robust than before.

China has lowered interest rates and significantly cut back on imports in response to the slowing economy (some of that is related to stockpiling commodities in the prior months), suggesting their real assessment of their economy is it'll continue to slow down, as recent comments by Chinese official confirm when talking about declining exports, which are reflective of the weak global economy.

Thursday, July 12, 2012

Is Gold About to Soar?

It may be time to get into gold again before the hoard starts pushing up the price and we end up chasing it for a much higher entry point.

This isn't built upon the idea of a possible stimulus happening sometime soon - although that would give it a nice push upwards - but rather upon how gold has been performing against major currencies.

Usually when gold is up against the majors, historically, not long afterwards it enters into a positive growth stage in price.

That has just happened over the last month, so gold should be poised for another upward run.

The good news is people are still largely negative on gold other than in relationship to the inevitable and upcoming implementation of QE3. But by time that happens everyone will be throwing money at gold and those late in the game will lose a lot of profits.

Obviously the key to making more money is to get in early.

With gold certain to soar again based upon stimulus measures alone, the inclusion of this currency signal, which has been historically wildly accurate and predictable, we could be on the verge of a huge upturn in gold.

And when the stimulus comes soon afterwards, it's unknown how high it could potentially go.

The currencies that gold is up against are the yen, U.S. dollar, British pound and the euro.

Merrill Lynch Predicts $2,000 Gold

With expectations the Federal Reserve will be forced to provide another round of quantitative easing, Merrill Lynch said they see the price of gold jumping to $2,000 an ounce.

According to Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research at Merrill, he sees the Fed adding up to $500 billion more to its asset-purchasing program sometime in the second half of 2012.

Blanch said this on Squawk Box:

"We think that $2,000 an ounce is sort of the right number. We believe that ultimately the Fed will be forced to do quantitative easing. If it happens in September, as our economists expect, we will get a rally sooner in gold. If it happens after the election, we will get the rally a little bit later; probably we will touch $2000 an ounce sometime next year."

Many high profile investors concur with the bullish view on gold, as they assert the Federal Reserve and other central banks won't be able or willing to refrain from attempts at "stimulating" their economies, even though it had done nothing to help in the past.

That points to eventual inflation, which favors gold, silver, and other commodities which trade in U.S. dollars, which will also eventually plunge from its temporary lofty position.

Some people even think that when Ben Bernanke talks to Congress next week about the economy that he could at that time announce another stimulus package.

Since the U.S. dollar has risen to fast and high recently, Bernanke could in fact make a move next week, as he favors a weak dollar as his tactic for attempting to alleviate a recession.

Another factor on the U.S. side is the presidential election, where the horrible American economy threatens the reelection of Obama. There will be pressure behind the scenes to make it look like something is being done to address the issue in order for Obama to look good.

More stimulus is a certainty. It's only a matter of when, not if. At that time the price of gold will soar again, pulling up many other commodities with it.

Wednesday, July 11, 2012

Goldcorp (GG) Lowers Production Guidance on Drought, Seismic Activity

Goldcorp (NYSE: GG) lowered its gold and by-product metal production estimates because of ongoing drought and seismic activity at its two leading mines.

For the year, Goldcorp dropped its overall production estimates from its previous guidance of 2.6 million ounces to a range of 2.35 million and 2.45 million.

Pressure came from its top Red Lake mining operations in the first half, while in the second half its Peñasquito property will be under pressure.

Because of decreased production expectations, the company altered its total cash cost guidance from $250 to $275 an ounce on a by-product basis to $310 to $340 an ounce; and from $550 to $600 an ounce to $625 to $650 an ounce on a co-product basis.

As for by-product metals, production guidance for copper remained the same at 110 million pounds. Silver production projections were lowered from 34 million ounces of silver to a range of 30 million to 31 million ounces; from 400 million pounds of zinc to a range of 310 million to 325 million pounds of zinc; and from 180 million pounds of lead to a range of 155 million to 160 million pounds.

CEO Chuck Jeannes said this about the two major mines:

"At Red Lake, we look forward to the resumption of mining in areas of the High Grade Zone that have been inaccessible due to de-stressing activities, but grade inconsistencies in the Footwall Zone experienced in the first six months of 2012 necessitate a conservative approach with regard to forecasting production during the second half of the year."

"At Peñasquito, the team is assessing opportunities to address water deficits as soon as possible. We are optimistic that sufficient water will be secured to accommodate long-term throughput forecasts but until those sources are secured, we have reduced the forecasts for ongoing throughput and production. We remain encouraged that the ore body continues to meet expectations with respect to grade and recoveries."

Expectations are plan production for the rest of 2012 at Peñasquito will be from 98,000 to 107,000 tpd, all of which will cut into gold, silver, lead and zinc production.

Year over year, gold production in the second quarter fell from 597,100 ounces to 578,600 ounces.

Shares of Goldcorp plunged by almost 10 percent Wednesday, dropping $3.58, or 9.74 percent, to $33.17.