Palladium!

Posted by Ray on April 14, 2010 under Main | Be the First to Comment

Those who read my material know that I am a bull on precious metals and have been for some time. The main reason is because over the long-term the Federal Reserve intentionally devalues the dollar, its buying power is down some 95% since 1914. The most recent reason to be bullish on commodities as a whole is because of Obama’s plan to double exports within 5 years. This is a lofty and unachievable goal unless you plan on devaluing the dollar. Based on our debt load the devaluation of our currency will happen whether we like it or not.

I have been more bullish on silver and palladium over the recent months. I started buying silver at $9/oz and palladium at about $230/oz so I have hefty gains already, but I believe this is only the beginning. With both of these metals you are playing both a global recovery, which I see happening, but not as robust as the talking heads claim, or if you believe the world is going to end. Either way, you should own these metals, perhaps wait until they selloff in the near future, but nevertheless, why wouldn’t you own them?

Silver is used in almost everything you have in your house, from your TV to your cell phone. Silver is also going to be under tremendous pressure in the near future as the global population grows and people are lifted out of poverty because everyone wants a cell phone, computer or even a mirror, yes silver is used in mirrors as it is the most reflective metal in the world. Silver is a dual purpose metal as it is used in industry and as a store of wealth. The Chinese and Japanese used a silver based currency in the 20^th century along with the U.S. as a bi-metal currency. Regardless, whether you think the world is going to end, own silver, or whether you believe in a global recovery, buy silver. Surface supplies are dwindling and all the easy silver has been mined. Combine that information with a growing population and we are bound, rather soon I suspect, to have a shortage in the supply/demand curve. Silver is an easy sell.

Palladium has been on fire lately moving up from $420/oz to $545/oz as of today, it was up $25 today alone! Palladium is used as an industrial metal first, mainly in catalytic converters, but it also is used in jewelry and as a precious metal, it was only recently that this usage has grown. Palladium is also a “green metal” as it can be used in several clean energy items, hydrogen cars for example. In short, it is a cheap alternative to its bigger brother platinum. Believe it or not, palladium is rarer than platinum and the largest world supplier of palladium is Russia.

I personally believe Russia is a pretty volatile place, I think history proves that point, which means the supply of palladium can be reduced if Russia throws a temper tantrum. There is always the possibility that Russia does something we do not like, like go to full war with Chechnya or invade Georgia, the country not the state. We could also upset Russia as well by invading, say, Iran, North Korea whoever which could create tension between the U.S. and Russia which could lead to less exportation of palladium to the U.S. If that happened prices would go through the roof.

The big story with palladium is the growth of automobiles in India and China. Between the 2 countries there are over 2B people who are being lifted from poverty to the middle class. As they ascend from poverty they will want what we have, cars. This means lots of catalytic converters in lower cost cars. Ultimately this means they will use less platinum and more palladium, regardless of where it comes from. All of this is a bull case for the metal and I think it could go much higher over time.

I believe the metal will be volatile, silver as well, because of the ETF’s designed to buy both metals. These ETF’s are likely the reason we see prices climbing recently so it is tough to know if the demand for the metals is organic or artificial, for investment purposes. Eventually people will sell PALL or SLV which will cause the prices to drop and that is the time to buy, IMHO. Also, if the dollar strengthens, which is what I think will happen, prices will drop then to. However, long-term I believe both metals are the trade of the century.

I am in no rush to sell what I have and am an active buyer, even at these levels. If you do a Google search for palladium coins or bullion you will see the supply is tiny. You can get palladium bullion, but you will pay a hefty premium for it. This is because supply is so limited and, as we know, you cannot just make more natural resources so the supply is finite. The price action is very exciting to those of us holding the metal already and what I like is the media never pays attention to either metal, never palladium though. Today with a 5% rise in value, no one said a thing, but if it was gold we would hear all about it, mostly negative things and gold bug jokes.

Silver and palladium are no joke and one should consider owning them. At the very least it is diversification especially if you own PM’s already. I am sure there is a bear case out there for both these metals, but I cannot find one that is reasonable.

Are precious metals being manipulated?

Posted by Ray on March 30, 2010 under Main | Be the First to Comment

I am what some would lovingly, or not lovingly, call a gold bug, but I find that term somewhat offensive. I simply believe in precious metals based on supply, demand and the Federal Reserve’s horrible track record of continually printing money. Essentially, if precious metals guard against inflation and the Fed tries to keep inflation at +2-3% a year it just makes sense to have some money in precious metals under normal circumstances, but add in a little financial crisis and demand far exceeding actual supply and metals are a sure thing, in my opinion.

Ever since I first decided to research gold and silver, those were the first metals I ever bought, I found countless threads and blog posts about the price being manipulated by the Fed and major banks. I figured that most of this was just rhetoric by my fellow bugs, but after awhile it started to make sense. Of course, there was never any real proof, just USGA reports showing the U.S. exporting way more gold than it imported and COMEX inventory reports showing far more metal being traded than could ever be delivered. There was also some obscure Federal Reserve minutes, from the 1970’s, talking about selling gold on the open market to suppress the price. Finally, there was Greenspan saying that the Fed was ready to sell as much gold as it could to drive the price down, which makes sense since gold did poorly in the 1990’s while money supply grew at an unprecedented rate.

It was all very interesting, but there was no actual proof. Sure, we had GATA with their data points and going to the CFTC to lodge complaints, but nothing ever was done. It finally appears that the rumors and conspiracy theories may have been right after all. Last week GATA dropped a bomb on the public by announcing it had a whistleblower that proves JP Morgan and other banks are suppressing the price of gold and silver.

Andrew Maguire, the whistleblower or Exhibit A, sent a few emails to the CFTC shortly before the non-farm payroll data was released a couple months ago. Mr. Maguire clearly outlined, 2 days in advance, that JP Morgan (JPM) was shorting silver in the thinly traded after hours market driving the price down. He told the CFTC that there were 2 possible outcomes, the payroll numbers would be good and silver would go down or the payroll numbers would be bad (which is bullish for metals) and the price of silver would go down. Sure enough, 2 days later, the price plummeted and Mr. Maguire traded emails again to ensure the regulator received them, he did.

It appears that an investigation is being started which would be the first manipulation investigation since the Hunt brothers 3 decades ago. What is striking is that one of the largest banks in the world has been implicated in what could turn out to be the manipulation case of the century, if the claims are true, and no media source has picked it up. I even brought it to a reporter friend of mine for a lead, after days of not hearing anything, not even from CNBC, but nothing yet. If this is true there are large implications for the precious metals market and it is very bullish.

I always figured that if the price was being suppressed, more sellers than buyers, eventually the gig would be up because you cannot sell more than you have forever. Eventually someone will want their metal along the way which means the banks would have to deliver and buy it in the open market. If that happened the price would go through the roof, but, again, this was all speculation until the whistleblower came forward. Somehow, I know this might be hard to believe, I am sure the CFTC will find no wrong doing anywhere and everything will continue back to the way it was, dysfunctional, but if the allegations are true prices will surely rise rapidly.

It is crazy to think that silver, especially silver, would be trading so low considering it is rarely recycled and silver is used in everything from the common mirror to your cell phone. By all accounts most of the easy silver has already been mined and new mines are just coming online now, but they take a long time to get into full production. Let us not forget that silver is usually mined s a secondary metal to begin with, usually gold or copper is the primary metal being looked for. I have seen some estimates that silver reserves will be depleted in 5 years, but no one really knows and that is an aggressive figure to say the least. What I do know is that silver is in high demand, above ground reserves are declining and governments used to be net sellers of the metal, but now are net buyers of it, all of this is very bullish. My point being is prices are cheap and regardless of whether these accusations are true or not one should hold some precious metals in their portfolio, silver being a core holding.

CNBC Bashing Gold 101

Posted by Ray on October 6, 2009 under cnbc | Be the First to Comment

CNBC dislikes gold for the obvious reason, it doesn’t advertise on its station and is the anti stock play, for the most part. Every day you will hear a rant from someone on the station on why gold is a bad investment from the station. Mostly from Rick Santelli, who I respect immensely I might add, mostly because they say it is a poor investment against inflation, which is not true.

Typically, the argument goes like this, the inflation adjusted high price of gold is $2,044, or somewhere close to there, and it is at $1,040 currently. Clearly equities have outperformed gold because the S&P 500 has done so much better because it has appreciated so much more since the 1980’s. That is only somewhat true. The point I would first like to make is this, gold is the only investment that is ever inflation adjusted in order to be judged as a good investment. It is also the only investment that is judged from its all-time high to its current price and judged to whether or not it is a good investment or not.

Perhaps we should do that with the NASDAQ? No, that wouldn’t be fair not would it. Sorry, back to the facts. If we look at the price of gold from when Americans could legally buy the metal it has done very well, it started trading at about $35 an ounce and is now at $1040 an ounce, not too shabby. So, it is fair to say that it has kept up with inflation over that time period, but if you bought it at the absolute high and sold it at the absolute low you would have done poorly, just like with stocks. That is why, like with any investment, you need to have a strategy and a long-term time horizon.

Now, since everyone wants to inflation adjust gold to judge it as a good or bad investment I figured that what is good for the goose must be good for the gander. So, I looked far and wide for an inflation adjusted chart of the S&P 500 over the long-term. Well, I found one and you may be surprised by what you see. Actually, what makes it even worse is it does not include the 2008 crash or taxes which would have significantly impacted the rate of return, much lower I might add.

It might be kind of tough to see, so I apologize, but I was shocked and if you don’t believe what you see, Google it yourself. However here is what it says. The S&P 500 from 1966 to the present (2007 when this was made) had a nominal annual rate of return of 6.9%, but your real rate of return was only a mere 2.2%. The most bullish period of time, 1982 to 2007, for the S&P 500 would have a nominal return of 11.4%, but your real return was only 8%.

Again, minus taxes from this equation and the picture gets even worse. So why is it that inflation only seems to impact gold, but not equities? It makes no sense at all that we do not look at the impact that inflation has on all of our investments and not just a select few investment options. Not to mention that it is clear that the Fed is clearly pushing investors into riskier assets in order to keep up with the rate of inflation which should begin to worry everyone, especially since the value of the dollar is being questioned more and more every day.

So, the next time someone says gold is a bad hedge against inflation, tell them they do not have the facts. Even with all of today’s new investment options available that supposedly fight inflation at the end of the day they mean nothing if the value of the dollar is being called into question or if they do not have a real track record during inflationary times. Gold works, it has worked for thousands of years and while the value will fluctuate it is safe to assume all asset values fluctuate, but it is one of those investments that will certainly never go to zero and will always have value.

Is the selloff here?

Posted by Ray on September 1, 2009 under Main | Be the First to Comment

This question is being asked by many people, especially the media which I find interesting since they are supposed to be in tune with the experts. Clearly we are taking a breather and I suspect that the downtrend will continue as we were way overbought. There is a caveat to this, liquidity.

My primary thought has always been that liquidity was the primary driver of this parabolic rally that we have had. That liquidity remains the wild card in markets as some liquidity will be removed through, supposedly, the Fed reaching its limit on quantitative easing. However, money is definitely abundant and can continue to drive stocks higher, but, in my opinion, that just increases the danger of a steeper decline.

I do not think anyone is surprised by the ISM data today as the primary driver of the increase was artificial stimulus form the government, primarily the cash for clunkers program. Unfortunately the demand from this stimulus will be short lived and as the market is telling us the good news was already priced into equities. One must also remember that the ISM flipped positive in 2002 as well, but proved to be false as the pain continued for months afterwards.

Furthermore, sales reported by Ford and Chrysler today were not so hot as they missed estimates. This shows that these firms should not be boosting production as demand is still very lax and will more than likely not improve as unemployment continues to be a major problem. As I have said previously, unemployment is the primary problem we face now as this is a credit led recession, not an inventory recession.

Realize that the ISM number is good news, but I believe it to be completely supported by government intervention, which is bad. The government cannot intervene forever and when they stop, which they have to a certain extent, then we will have real demand data, which is pretty bad. I know you have been hearing the talking heads trumpet the good news as the end of the recession is over and everything is great now, but that may not be true. As I said above, the ISM had a very similar rebound in 2002, but the recession went on.

We are still having problems with real estate which is been a bit convoluted with the data that you have been presented with, but based on what we see only lower end homes are moving and prime mortgages are now defaulting. There is no question that the economy is in better shape than a year ago, but the problems are still here. Frankly, all that has happened is that banks have relaxed accounting rules and the government simply supported the whole system. If the support system was removed and accounting went back to where it should be the whole thing would fall apart and everyone knows that.

As far as real estate it is estimated that over 2 million new home sales are because of, drum roll please, the $8K tax credit! Take that away and there goes demand. My point is that artificial demand has created more of a problem than a solution because when real demand is figured out the market will retract significantly. Creating confidence in a system that is sure to disappoint when support is removed is just plain wrong, but that is what we have.

Yes, liquidity can drive the markets higher, but what we are seeing today is just the beginning. People have figured out that good news has already been baked into the cake and demand is not real demand so people are exiting stocks for safer investments. Today, gold, silver and short-term treasuries are doing fairly well, which is what I hold I might add, while riskier assets are getting hit pretty good today. Outside of precious metals and defensive names, like Wal-Mart or McDonald’s, I am not inclined to buy anything right now.

Palladium, the new platinum

Posted by Ray on August 25, 2009 under Main | Be the First to Comment

I am sure you are familiar with precious metals like gold, silver and platinum, but there is one more metal that gets ignored, palladium. Palladium is a member of the platinum family and is, actually, much more rare than platinum. This metal just might be one of the best options for those looking to invest in precious metals, but it is often ignored.

The metal is ignored because it is viewed as cheap, at $290 an ounce, but it is cheap for a reason there is no demand right now. That, I believe, is about to change as automakers are looking to save money and make their products cheaper. Palladiums big brother, platinum, is used in catalytic converters to lower emissions, but at almost $1,300 an ounce it is extremely expensive. However, palladium does the same thing at 25% of the cost and it is rarer than platinum. The fact that there is a very strong possibility that automakers will dump platinum for palladium is reason enough to buy the metal, the last time this happened palladium went to the moon.

However, the story just gets better because palladium is used for other things too. For some reason palladium can hold up to 9 times its weight in hydrogen which makes it useful for those exploring hydrogen powered cars, but its ability to lower emissions also makes it desirable for those industries looking to go green. For that reason it is a nice green play, for now, while it is cheap. Also, the major suppliers of palladium are Russia and South Africa, with Russia being the primary supplier. As you know Russia can be hard to deal with so the supply could be cut off at anytime, making the case of ownership of the metal even stronger.

The metal is also used in jewelry, which may not excite you right now, but consider this, China has emerged from the economic slump and platinum is very popular there. As I just said though, platinum is very expensive which makes palladium, which has many of the same characteristics as platinum, attractive for its low cost. So far palladium has performed very well this year coming from a low of $185 to $290 at the moment, it was up today when other metals were down which makes me think Detroit is moving in its direction now.

So, this metal is a green play, an automobile play, a jewelry play and, essentially, a recovery play which makes now a very good time to be a buyer. Last year the metal was twice as expensive, but like with all metals last year it got pummeled. The biggest problem is how do you buy this metal, there is no ETF and most people do not want to buy futures contracts. The only real way to buy it is physically, which is how I own mine, or through buying companies that manufacturer it, like Stillwater Mining.

If you want to buy the physical metal it is a bit tougher because there are only 2 forms to buy it in, the Canadian coin or the Pamp Suisse bar, both are sold in 1 ounce increments. Unfortunately, Canada does not make the coin anymore and they only had 3 years of production, 2005, 2006, 2007, and the 2007 version is considered ‘rare’ and sells for a premium. Actually all Canadian palladium coins sell for $100 premium, but the Pamp version only sells about $30 to $50 over the spot price. For the best place to buy these products go to a reputable dealer either locally or on the internet, like Apmex.com, GoldenEagleCoins.com or BullionDirect.com. You can get them on Ebay, but if you do not know what you are doing go to a dealer.

Like I said, I believe that the transition to palladium is on its way and I have no idea if that is a fact or not, but what I do know is I like the price action lately. I believe that if you get in and hold it long-term you could potentially do very well. It gives you inflation protection, but you do not need inflation to profit with all the alternate ways the metal could appreciate just makes this metal too good to be true, in my opinion.

Disclaimer: I do not own any of the stocks listed, nor do I have any agreement with any website listed in this article. I do own the physical meatal and am actively adding to my position.