Jim Rogers: What now for Commodities?

Jim Rogers said the commodities bull market is still on track to higher prices, but he isn’t buying anything right now.

In an exclusive interview with IndexUniverse.com, the commodities king said the downdraft in commodities the markets experienced in June isn’t unusual. “It’s the way the world works.”

“If you look at oil, for instance, it has gone down over 50% three or four different times since 1998,” added Rogers.  “That’s what markets do, and they will continue to do that.”

When asked whether the commodities bull market that he envisioned more than a decade ago and about which he wrote in his book, “Hot Commodities,” is still intact, Rogers said, “yes.”

Close followers of Rogers know he likes agriculture more than any commodity, longer term.  Populations are growing in size and prosperity in Asia, bringing with that growth an upgraded and voluminous diet—the demand side of the price equation.  On the supply side, Rogers notes the aging of farming personnel will pose challenges to the restocking of qualified talent.

“We know that there are huge shortages of agriculture developing,” he said.  “I don’t know if you knew this, but the average age of farmers in America is 58 years old. In 10 years, they’re going to be 68, if they’re still alive. Throughout the world, we have serious, maybe even catastrophic developments in agriculture, which is going to hurt us all over the next couple of decades.”

In the oil market, Rogers sites the lack of meaningful new discoveries to offset Asia’s insatiable demand for crude, reminiscent of the days post WWII in the United States as industrial growth jumped into overdrive to supply a war-torn world with everything from household appliances and automobiles to military and commercial planes.  China isn’t selling air force fighter planes yet, but it sells just about everything else that can fit into a big box store.  Nevertheless, China has overtaken the U.S. in oil imports.

“I do not see any major new sources of supply [of oil]. We know that the known reserves of oil continue to decline worldwide,” Rogers explained.

And as far as the hottest commodity since the summer of 2010, silver, Rogers likes it for the rest of the decade and wants more of the poor-man’s precious metal on pullbacks.  He had said early in May that the moonshot move to $50 in April didn’t look healthy and hoped for a pullback to kill the froth.

“Well, I’m long silver, and if it goes down more, I hope I’m smart enough to buy more,” he said.  “I didn’t particularly like seeing it spike, because anything that turns into a parabolic move has to be sold. And I don’t want to sell my silver. I want to own it 10 years from now. Fortunately, that spike did break, and I find that encouraging and bullish.”

Here we go! Gold News floods Mainstream Media

After India’s bombshell imports report released on Monday—which showed that the largest democracy on the planet took in 500% more gold and silver as imports during the month of May than it imported in April—mainstream news outlets have posted a few more articles about the relatively quiet stampede (up til now) into (physical) gold.

Today follow-up gold news articles from Monday include three from Bloomberg and one from The Financial Times.

Bloomberg’s article entitled, “UBS Gold Sales to India Rise 23% So Far in 2011; Demand ‘Robust.’” confirms Mineweb’s article on Monday—which originally reported the mind-blowing gold and silver import statistics for India.

“Physical bullion sales in May rose ‘a very substantial’ 76% from the previous month and 161% from a year ago,” according to Bloomberg. So far this year, UBS said that UBS bullion sales to India are already up 22% from the same period last year.

“The value of India’s combined gold and silver imports soared 500%  in May from April, and 222% from May 2010,” UBS’s Edel Tully stated in a recent report given to Bloomberg. “While import volumes rather than values would be much more accurate, given the run-up in gold and silver prices in May, the figures still provide a good indication of the country’s robust appetite for precious metals.”

Another piece from Bloomberg, entitled, “China Central Bank Plans to Double Issuance of Gold Panda Coins,” gives us a clue to retail demand from the people of China.  We know the China’s central bank is on a tear, scooping up domestic mining supply within the borders of the People’s Republic.  It’s been reported that China’s central bank buys all available supply from domestic mining operations.

“The People’s Bank of China said on its Web site that it plans to issue about 1 million ounces of its 2011 panda commemorative gold coins compared with plans at the end of last year for 500,000 ounces of the coins,” according to Bloomberg.

One million supply of Pandas for a population of 1.3 billion?  Now let’s wait for another Bloomberg article which will cover an announcement from the People’s Bank that it ran out of Pandas within the first few weeks of issuance.

China and India have indeed hogged the gold and silver headlines this week. But not to be outdone (let’s say, on a per capita basis) are the good folks from Down Under, who have accommodated those (mostly Westerners) wishing to load up on silver—the second go-to safe-haven currency after gold.  Bloomberg got this story, too, and was very busy uploading all these articles in time for the Greek crisis to head into the final inning deadline of July 3.  The article from Bloomberg, entitled, “Silver-Coin Sales Booming at Perth Mint on Demand for Haven” stated that demand out of the Perth Mint bustles along as it has since the beginning of the year.

“Silver-coin sales from Australia’s Perth Mint, which was founded in 1899 and processes all of the country’s bullion, have surged to a record as buyers seek to protect their wealth with the metal known as poor man’s gold,” according to Bloomberg.

Bloomberg noted that the mint sold 10.7 million 1-ounce silver coins since July 1 last year, according to sales and marketing Director Ron Currie.  “That’s 66 percent higher than the previous full fiscal year and about 10-fold more than five years earlier. Sales of 1- ounce gold coins will be close to a record,” Currie told the leading business media outlet.

And kodos goes to the Financial Times (though, the online journal forces readers to sign up), which reported that Greeks have been dumping euros for gold, recently.  No surprise there.

In the FT article, entitled, “Greek savers rush for gold,” the gist of the article read:

“Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks,” according to FT.

Savers making the switch out of euros into gold has decidedly, it reported.

“When the global financial crisis started, our sales of coins to investors overtook bullion for the first time,” Harry Krinakis, at Sepheriades, a Greek precious metals trader, told FT. “Now the sales ratio has reached five to one.”

Wondering why CNBC doesn’t have at least one article about gold’s lure during the protracted and dramatized Greek crisis?  You aren’t alone.  But when it comes finally time at CNBC to broadcast a segment on the gold and silver market, you’ll be sure Steve Liesman will be waiting in the wings to offer the latest talking points hatched from his group of Fed lackeys and wannabes.

Don’t Trust the U.S. Government, says Marc Faber

Speaking with UK-based financial magazine, Money Week, famed Swiss investment manager Marc Faber said America needs to experience “a devastating crisis” before real growth and jobs can be created.

Foretelling the inevitable burst in debt several years before the collapse of Bear Stearns, Faber’s has gained a reputation as someone who is able to spot the effects of years of mal-investment within the U.S. (and globally), dispassionately, while others cannot, or won’t.

As today’s disciple of the Austrian School’s Karl Menger, Ludwig von Mises, and Friedrich Hayek, Faber’s track record of “getting it right” has amassed him a huge following of investors grown weary of the 1984-like communications and deceptive practices of the U.S. government and its financier cohort, the U.S. Federal Reserve.

Faber’s forecasting record and delivery style on the deteriorating state of the U.S. has taken on a air akin to the counterculture revolutionaries of the 1960s but with a viewpoint more focused on financial and economics matters—ironically, maybe, directed to the same a demographic most affected due to inability to recover in time for retirement—the Babyboomer.  Faber, himself, is 65-years-old—another Babyboomer who still sports a ponytail and distrusts those in authority to take selfless actions for the sake of the greater good.

Faber told Money Week that the debt hasn’t gone away in the U.S.  Instead, it’s grown much larger but shifted into the form of public debt and away from the ones who created the original oversized debt load in the first place.  And the only way out of a default (either outright, or through inflation) is “to impose a flat tax and cut government expenditures by 50%.”  But only a financial catastrophe would affect those cures, he said.

The consequences of attempting to solve a U.S. solvency crisis with ever more debt from Treasury and the Fed doesn’t have Faber chanting the “king dollar” mantra on public airways to millions of U.S. viewers each day on programming outlets such as CNBC.

He points out that in dollar terms, the rebound in the S&P from the March 2009 low appears to some investors that an economic rebound in the second half of 2011 and 2012 is expected.  But when the S&P is priced in other currencies, such as the Swiss franc, Australian dollar, Japanese yen, as well as the monetary metals, gold or silver, equities have dropped from 50% to 80% since the market peak of 2007, he said.

Of the various forms of protection from future dollar declines, gold is his favorite.  Gold (and silver) doesn’t have a constituency to placate, especially as it relates to the U.S. dollar.

“Not to own gold is to trust the value of paper money and the government’s integrity,” said Faber.  “No one in his right mind could trust the U.S. government any more.”

And finally, Faber shrugs off the talk of a gold bubble.  He insists that the bubble is NOT in the gold market.

He said the world is, instead, “grossly underweight gold” but “flooded with U.S. dollars.”

Silver Inventories Dangerously Low; 3 Stocks to Consider

One would think that as prices dropped sharply in the silver “market” during the month of May, the Comex would contain more silver in inventory as big players fearing some form of run on the Comex soon lost their appetite for the precious metal amid the mini-crash of a more than 30% in price in the first week of May and wouldn’t stand for delivery.

Well, one would think incorrectly.  As the silver price dropped, the rate of depletion of available silver dropped as well, but the rate of depletion still remains at a near free-fall rate.

In fact, according to the Comex’s Metal Depository Statistics report, just released, registered silver bullion at the Comex has dropped again to a record low of 29.6 million ounces in May, a drop of 3.5 million ounces in one month.  That drop comes off the heals of a 8 million plunge in inventories in April, from February.

At today’s silver price of $37, the value of total Comex silver available for delivery equates to a miniscule $1.1 billion.

Compare the 29.6 million ounces with the Comex’s inventory of registered silver reading of 86.6 million ounces in July of 2008, or a decline of 1.7 million ounces, on average, each month.  So, the raid on the silver stock has escalated markedly during the last two reporting months of April and May.

At the present rate of offload, the Comex stores approximately six months of inventory of silver bullion.

Click here for a graph of the trend in Comex silver inventories since August 2008.

Rick Rule, founder of Global Resource Investor, told Eric King of King World News that the paper market in silver is a tool for institutions to trade the white metal, but the underlying physical shortage available to fabricators and retail investors continues at prevailing prices.

“Yeah I think there is absolute shortage in the physical market,” said Rule.  “There has been some softness (in the price) which I think is mostly a function of two things, generally a sort of risk off trade as institutional investors in particular have found credit conditions more difficult, and of course the tightening of the margin requirements in the futures markets.”

Rule added, “But I don’t think that has obviated the near-term physical shortage, which has come about from very, very strong retail end user investment demand and a shortage of coin strip.”

3 Silver Stocks to Watch

Pan American Silver (Nasdaq: PAAS)

Coeur d’Alene Mines (NYSE: CDE)

Hecla Mining (NYSE: HL)

Marc Faber could be right about Stocks

Marc Faber’s noticeable absence from financial reporters and television interviewers questions in the past two weeks hasn’t left investors without his previous guidance.  His last call, reported by Wall Street Pit, in which he stated that U.S. equities markets are in the midst of a correction, appears to be still operative.

In his last interview of May 4, Dr. Faber, the publisher and editor of Gloom Doom Boom Report, told Wall Street Pit he anticipates a tumble in U.S. stocks of 10%, noting weakening market internals, including a drop in the number of stocks reaching new 52-week highs.

The S&P500 peaked at 1,364.14 on April 29, a 10% decline from the April high calculates to 1,228.10, or 43 points higher from the close of 1,185.64 on Oct. 26, 2010—the date Faber made his first call for a 10% correction in the 500-stock average—which illustrates the difficulty of timing market tops, even among the best.

In contrast, Faber’s miraculous call of a market bottom on March 6, 2009, when the S&P500 did, indeed, reach the low of 666.79 was much easier for him.  In fact, the call for a bottom on the day during the panic of March 2009 was the easiest call he’s ever made, according to the Swiss money manager who lives in Chiang Mai, Thailand.  As a contrarian market timer, Faber noted the record bearishness in sentiment for stock on March 6 as the basis for his call for an imminent rebound rally in stocks.

But calling tops involves more than watching for extremes in market sentiment. Among many popularly followed indicators and a rather reliable one, is the price of copper, which is also referred to as Dr. Copper for its highly correlated and leading price patterns to equities.

While the S&P500 reached new multi-year highs early this month, the copper price failed to confirm the rally in the S&P, moving lower in May from its February highs, further buttressing Faber’s case for an imminent decline in stocks.

On Feb. 15, copper reached $4.65 per pound, but the price has trended sideways to down since then, trading as high $4.05 in the June contract, yesterday.

However, Faber’s call for a correction in stocks shouldn’t be construed that he is an U.S. equities bear.  Though, when priced in gold, the S&P500 will drift significantly lower, he has repeatedly said, but in nominal terms, Faber expects equities to move higher as long as the Fed continues its zero interest rate policy (ZIRP)—that is, real interest rates after the inflation rate is deducted from the Fed’s overnight federal funds rate target.  Presently, overnight real interest rate is  negative.

In an April 27, 2009, Bloomberg interview, at a time of heightened fear of a global meltdown in the equities markets, Faber cautioned investors to not be too pessimistic as long as the Fed has the power to inject endless capital into the banking system.

“Don’t underestimate the power of printing money,” said Faber.

“The more things will go bad, the worse things become, the more the money printer at the Fed, Mr. Bernanke, will print,” he added. “He will print endlessly. Even if things go bad economically, you could have no revenues at companies and no earnings and stocks will go up because of money printing.”

“Insufficient silver to meet the settlement,” says Rick Rule

In a startling interview on King World News yesterday, Rick Rule told KWN’s Eric King the suspicion surrounding COMEX inability to settle the March and subsequent nearby contacts could be justifiable.

“There has been so much physical buying that it’s widely reported that the mints are having difficulty obtaining coin strip in the face of overwhelming coin demand,” said Rule. “There has been suspicion with the March settlement and with subsequent near-term settlements that there will in fact be insufficient silver to meet the settlement requirements in those near month futures contracts.”

Rick Rule, founder of Global Resource Investor, now part of $9 billion Sprott Asset Management, suggested that global investors seeking haven from an unprecedented coordination between central banks to devalue its respective currencies have turned to gold and silver as a final refuge.

It should be noted that today’s currencies of choice, the Swiss franc, Canadian dollar, Aussie dollar, Brazilian real and Malaysian ringgit are tiny markets struggling to offset the onslaught of newly created dollars by the U.S. Federal Reserve into the global monetary system.

Most recently, central bankers of these currencies have been watching export data especially closely during the dollar’s plunge below the 78 level in the USDX for signs of slowdown in vital industries and employment within their respective economies.  Too much tightening hurts demand for exports, whereas too little tightening exposes consumers further increases in the rate of change in consumer prices without the mitigating effect of a strong currency against the global commodities complex priced in U.S. dollars.  Gold and silver, Rule said, are “without a political constituency for devaluation.”

“It is true the dollar is the world’s reserve currency so it’s the fiat currency that everybody is reserving special wrath for, particularly in view of the profligate nature of US debt issuances,” Rule continued. “But there’s a bigger problem with regards to fiat currencies that people have, because if you are going to somewhere other than gold, what is the fiat haven? I don’t see a fiat haven, and that’s problematic.”

If there was any doubt of today’s silver market once again proving the principles of Gresham’s Law (also known as, Copernicus-Gresham Law) cannot be denied forever, a plausible explanation for a remarkable 144% rise in the silver price from the Jun. 7, 2010 low of $17.22 would soon be forthcoming from Fed chairman Ben Bernanke.

But, alas, Bernanke won’t be cornered into Gresham’s argument.

“I don’t fully understand movements in the gold price,” Bernanke said on Capitol Hill in early June 2010. Ditto, of course, for an explanation for the rise in gold’s kissing cousin, silver, which historically takes center stage with its breathtaking moves in previous capital flights out of the U.S. dollar—post Brenton Woods.

According to Wikipedia, “Gresham’s law states that any circulating currency consisting of both ‘good’ and ‘bad’ money (both forms required to be accepted at equal value under legal tender law) quickly becomes dominated by the ‘bad’ money. This is because people spending money will hand over the ‘bad’ coins rather than the ‘good’ ones, keeping the ‘good’ ones for themselves.”

Fears of the U.S. entering a full-scale, third war in Libya; the effects on global markets post a bona fide end to QE2 in June; another financial blowup in Europe (this time Spain); a business-as-usual approach to a fiscal 2011 $1.6+ billion deficit in Washington; Japan; further oil price shocks; or a combination of any of these are driving an increasingly jittery investor into taking the plunge into an asset class which has been out of favor for more than 30 years.

And since silver’s tiny $75 billion market remains the smallest against all competing legal tender “currencies” (none of which, is backed by gold or silver bullion; the Swiss franc came off the gold standard in 1999) near-panic demand is overwhelming available supply, suggesting further increases in the silver price may be needed to induce potential sellers to meet current demand for the metal.

“Well I think part of what’s happening in the silver market is the fact that the market is in backwardation which is to suggest that the spot price is ahead of the futures price,” Rule explained. “This is the opposite of a contango which is what normally what happens in metals markets.  It is obvious that there is incredible tightness in the physicals market.”
“It’s obvious from those statistics that the near-term silver supply, in particular the physical supply, is extremely tight, and as a consequence of that extremely volatile…We’re in an extraordinarily tight market.”

 

At 9:55 a.m. (EST) spot silver trades at $42.54 per Troy ounce, up $0.89, or 2.13 percent.