From Bill Cara, bearish as ever<g>--"Gold (Dec) is down $26 to $591 today. But traders who figure that gold is the problem had better check the whole market.
What is happening today around the world is that the equity Bear is in full motion. Nothing has changed from my continual forecast of a much lower U.S. equity market. The equity market is unfolding as I thought it would for the reasons I have consistently expressed here.
What is different, and perplexes me, is that the $USD has gained much strength, and that commodity prices (oils and metals) are falling so quickly. While I did note about ten days ago that the $CRB had broken down technically, I am surprised at the rapidity of the move, and with it the depth to which precious metals have fallen.
I suspect that hedge funds and momentum traders are playing this commodity sell-off move with a $USD hedge. Unfortunately, the speculation that took oil to 80 and gold to 730 could drive oil to 55 (-31.3 pct) and gold to 540 (-26 pct).
I don’t know the extent of the decline, but I do know that at the present level, gold is a bargain, and for every $10 lower it goes, it will be a bigger bargain.
If the commodities Bear phase continues at this pace, and works through to the levels noted, then there is no doubt in my mind that the economy is headed for a hard landing, many hedge funds will collapse, and corporate earnings will be quickly turned to losses in some cases, and major disappointments in others.
In that event, I do see the worst case Dow = 8800 forecast I made early in the year to be the most probable result.
But, and this is critical, the problems with the U.S. twin deficits continues, and the only way out of this stagflation mess is for the Treasury/Fed to reflate, which is the same solution that central bankers took in the mid-70’s (the last time stagflation existed).
And we all by now recall what happened to gold at that point. It traded wildly both up and down, but went on to set a record high that was close to $800. In inflation-adjusted terms, a comparable gold price in the next Bull cycle would be much higher than any gold price I have forecasted here.
Why I am writing this, at this point, is to remind you that the past year corporate financing market has resulted in almost all gold companies, including explorers and even penny stocks, to be debt-free and cash-rich. The properties these companies control and are presently exploring will result in new discoveries and much market promotion in the future. The lower energy costs, if sustainable, will result in lower production costs.
And when you look at the current cash operating costs of companies like Goldcorp and potentially with Crystallex, and you look at a gold price of $540, you have to smile.
Then you consider what the profitability will be with the gold price at $700-$850-$1000-$2000, and you can only conclude that the present price pull-back is resulting in the Buy of the Generation."
billcara.com |
