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.

Gold, is it time to buy

Posted by Ray on September 2, 2009 under Main | Be the First to Comment

Everyone is talking about gold over the past 24 hours mostly because it went parabolic today. Those who follow me know that I am a big gold fan, but we are seeing many others jumping onto the bandwagon about the yellow metal. The big question is why is it having these giant leaps and will it continue.

I believe you are seeing gold increase because of economic uncertainty and the fact that it has strong fundamentals right now. I am not sure if it will break above the $1,000 mark and hold, it has always sold off when it reaches this area. However, based on the action we are seeing I do believe now is the time it will break and hold that threshold. I believe that China is the driving factor behind the sharp increase lately as they diversify their holdings and are hedging their dollar assets.

Another rumor, strictly a rumor from where I stand, is that the Chinese will revalue their currency and perhaps peg it to the Euro as the EU is now China’s largest trade partner. People cite the movement in the CNY for the latest rumor, but I do not know if that is really going to happen. I do think it could happen, but who really knows, rumors are just rumors. If this did happen then gold would go parabolic overnight and the dollar would take a bath, but I do not foresee this happening. Regardless, what we do know is that if you owned gold for some time you have done very well.

I think what we are seeing is a lot of short covering and the Chinese middle class stepping up to the plate and buying gold. All throughout history China and India have been huge fans of gold and many believe it brings luck, but more importantly they see it as money. Whether it brings luck or not, who knows, but what we do know is that the population of both China and India could easily suck up existing supplies if they are indeed buying the metal.

Surprisingly we saw gold and silver hold up very well in the face of a strengthening dollar, which is unusual, a few days ago. Usually when the dollar increases all precious metals take a nice nose dive, but not lately, although the strength in the dollar is not very impressive to say the least. I think that people are moving towards gold as a safe haven as they realize that gold has maintained its value this year and that the crisis is still not over yet. Having gold during uncertain economic times has always been a good bet and that, in my opinion, is what we are seeing.

In the recent past I said I liked gold and recommended picking it up under $960 an ounce. It did go below that mark so I hope people did buy it, but I am not so wild about buying it after such a sharp move upwards today. I think we will see a selloff tomorrow for those taking profits and after the selloff I would then consider buying it, no specific price target, but I would dollar cost average in. While I am bullish on gold, I am more bullish about silver.

Traditionally the gold to silver ration, GSR, has been tighter than it is right now. From 1792-2002 the GSR has a mean of 31, 31 ounces of silver to 1 ounce of gold, but currently we have a GSR of 63. That means that silver just about half the price it should be according to the traditional GSR. If the GSR returns to its traditional average silver should be trading at about $31.40 an ounce, double its closing price. To me that looks very bullish especially because the fundamentals are there. All the easy silver has been mined and we do not recycle it while every piece of electronics you have contain silver in order to make them work.

My point is, yes buy gold in a cautious manner, but also buy silver as you will get more bang for your buck. Essentially, silver can double in price when gold may only go up a few percentage points. It is also about diversification and if you buy precious metals then you need to diversify between them. I am currently a buyer of all precious metals in this order; palladium, silver, gold and platinum. While gold usually gets the spot light, silver and palladium usually get ignored which makes them a good buy as their prices will follow the majors, gold and platinum.

Play it safe and dollar cost average in.

I own SLV, GLD

The Dollar Must Decline

Posted by Ray on August 24, 2009 under Main | Read the First Comment

The only way this market can continue its parabolic climb is if the dollar gets taken down. This morning as I watched equity futures at 6 AM I thought it was odd that the dollar had strength while futures were up. Then it happened.

Right around 7:30 the dollar began to drop as futures keep their gains, this has been typical during this new bull market. While this might make people feel better about the economy, keep in mind that the markets had decoupled themselves from equities, many may be shocked to learn that the market’s gains were at their expense. If the dollar looses value and equities go up, which is typical, then your net buying power has actually decreased which nullifies your gains.

I am sure not many people are paying attention to this fundamental fact, but nonetheless it is there and a reality. Even the likes of Cramer are not connecting the dots as he cited higher oil prices for the market’s rally last week while it had little to do with oil at all. It had to do with the decline in the dollar’s value which drove oil higher, along with significant draw downs in inventory.

I am not sure if the media is intentionally ignoring this fact or not, but it is there which also explains higher commodity prices as well. At this rate the Dow could hit 14,000 again, but your buying power will be diminished. A weak dollar is good for your multinational companies and commodities, but nothing else. I do not know about you, but I am not a fan of our currency being devalued in order to prop up a failing bank system which is exactly what is happening.

To maintain your buying power you should consider having commodities in your portfolio. I favor gold, silver, platinum and palladium, but you may favor something else like oil. It does matter what commodity you choose as you want a liquid investment with strong fundamentals. For that reason is why I heavily favor precious metals, but your risk is if a black swan emerges. If we have another 2008 event money will pour into the dollar driving commodities lower. This is why you need to be diversified between asset classes, however if you do not own any commodities, what are you waiting for?

The Dollar, The Short-Term Outlook

Posted by Ray on August 17, 2009 under Main | Be the First to Comment

I have been very bearish of the dollar for some time and on a long-term perspective that remains true, but short-term is a different story. This last rally we had was more a function of a weakening US dollar and a drastically oversold environment rather than a function of real economic recovery. Contrary to popular belief the market does not represent the state of the economy.

In fact, it is a very poor indicator of economic conditions. As the talk about a new bull market and the economy has ‘recovered’ ensued over the past month it was primarily based on ‘less bad’ information. While people were trying to make you feel better about the real situation they forgot to examine the fundamentals or other reasons for equities to rise. In this case it was purely a fact of a few things that no one, for whatever reason, really looked at. The reasons are as follows:

1. A very weak dollar which eroded your real rate of return in the S&P or Dow.
2. Improved economic data, but by no means was the data as good as the market let on.
3. Drastically oversold situation heading into March where the markets were just decimated.
4. Asia’s economy does have decent signs of recovery, so that makes many assume we are recovering at the same rate which was false.

Since my call on August 7^th when we had strength in the dollar, the markets and commodities did not get crushed was indeed the top in the short-term. As the dollar continued its climb equities have declined, but the rise in the dollar is happening for a specific reason, a flight to quality. The likes of Goldman Sachs, Morgan Stanley, etc. knew that the conditions in equities were overbought in July and that there are still major fundamental problems within the banking system, hence the 77 closed banks so far this year.

When I put it together 2 weeks ago it was clear as day for me to see that as you were buying equities Goldman & Co. were selling and buying the dollar. I, obviously, cannot be 100% on that, but I assumed it was a good educated guess and was convinced to tell you all about it. I did sell into that last rally and sold even more last week because I fear a pretty nasty decline in our near future. I suspect there is going to be some revelation that regional banks are having a tougher time than we think and that some type of ‘Black Swan’ is about to take center stage.

This is why I am somewhat bullish shot-term on the dollar as the flight to safety picks up steam, which it will if I am correct. This, however, is very bad news for commodities which will become far cheaper in the near future as the dollar strengthens. In fact, this looks eerily similar to last summer before the real crisis hit. Now, I do not think things will get that bad, but anything is possible. The good news for all of us ‘gold bugs’ is that gold will get much cheaper moving forward. While I think gold will go lower short-term I am a long-term bull because we will eventually have inflation and that is why I always say buy gold in increments and not all at once.

Now, the Elliot Wave International CEO thinks the dollar is going to multi-year highs, but I highly doubt that. We will be the last country to absorb our excess liquidity, if we ever do absorb it, compared to Europe and other countries. Leaving the liquidity will either devalue the dollar further, which is my opinion longer term, or it will create inflation according to all the experts. Both way, this is a short-term outlook and you need to invest for the long-term, but make adjustments to what you can see in front of you in the present.

There is no doubt that we are heading for something pretty interesting and while I will not be happy to see my GLD and SLV, plus physical, go lower I welcome the buying opportunity. In fact, I am very excited over the prospect that palladium could go as low as $200 or so as I have had my eye on a 2006 Canadian Palladium coin. I also think we could see platinum drop to the $900ish area as well, which is exciting if you have been looking to buy some below its pricey $1,200 current level. Silver could drop back to the $10ish area and gold could drop to the low $800ish.

Remember, I am a long-term bull on precious metals, just currently a stronger dollar is not good news for them right now.

The World is in Trouble

Posted by Ray on August 12, 2009 under Main | Be the First to Comment

This is not just my opinion, but that of Deutsche Bank Chief Economist Norbert Walter. He brings his concerns to an interview to CNBC.com and he has very strong, reasonable concerns for his comments. I am on the same page as he is and have brought my concerns over the economy and the dollar to my readers for a long time now. This, in my opinion, merely ads credibility to my opinion and throws aside the thought of those green shoots we hear so much about.

If things were fine then we would have seen some real action from the Fed today, certainly if things were as fine as CNBC and other media outlets claims it is at least. Regardless Mr. Walter went on to say; “I believe that the rescue packages brought on have been so costly for so many governments that the exit from this fiscal policy will be very painful, very painful indeed,” he said. “Some of us are already talking about a W-shaped recovery. I’d probably talk about a triple-U-shaped recovery because there are so many stumbling blocks here to get out of this.”

This sounds pretty familiar to me as it is the same concerns I have echoed for some time now. However, I am not so bleak in my outlook and expect a W recovery and pray that we do not have a triple U pattern, which is possible, but, hopefully, unlikely. He went on to say that many companies thought the recession was going to be shallow and did not layoff people even as sales deteriorated, but that will change in the near future, according to Mr. Walter.

He also has concerns over Australia’s potential interest rate increase in September, which is possible, and says the “markets will certainly shiver” if that happens. He, as I, also has concerns over the dollar as the current administration wrestles with health care and has put an exit strategy on the backburner of the Fed’s monetary stimulus. The Fed’s actions will only increase our troubles as cheap money got us here in the first place, but now we have so much more to worry about than cheap money like the monetization of our debt and the printing of more dollars.

Mr. Walter went on to say; “there are big concerns of about the direction of the U.S. dollar.” Followed by; “I’m deeply worried about the worries of those investors who have invested a lot, really a lot into the dollar” like the Chinese, Japanese, Arabs and Russians, he said. All of those countries, with the exception of Japan, have voiced some concerns over the safety of the dollar. Their concerns are with merit, I might add, as we are issuing more debt and have monetized a lot of our debt and I am sure that will continue after October.

He concluded with these comments; “If they have second thoughts about the quality of this currency then the dollar is bound to weaken” which means higher long-term interest rates for a country where government debt is approaching 100 percent of gross domestic product, he said.

If that happens, “2010 could be a worrisome year for all of us,” he said.

These comments are echoing my concerns, but they are even darker than I thought is possible. This is why I have always allocated more of my money to non US securities, usually keeping only 20-25% in the US and the rest invested internationally, mostly Asia. I have also taken great pain to find other alternatives such as precious metals, GLD and SLV are OK, but physical metals never hurt, and sovereign government debt, like the PCY which I have talked about a lot.

Regardless, these are not just my opinion and we should look at what Mr. Walter is saying with an open mind. While it is unlikely that we will have a doomsday scenario, like a currency crisis, but it certainly does not mean that things will not get very bad. This is why I believe in hedging and others should as well, but I digress.