Greg's Note: So gold and oil have eased off their record highs. In fact, they plunged back down in recent weeks. So what's the explanation for this? Outstanding Investments' Byron King discusses this free fall and decides whether or not this is part of an overdue market correction or a fundamental change in the markets for gold and oil. Which side are you on? Let us know by writing to greg@whiskeyandgunpowder.com. Whiskey & Gunpowder
What's going on with gold and oil? Here's what we know. Prices for both gold and oil were moving upward for most of the spring and well into summer. Then prices hit a peak. Gold touched $980 per ounce. Oil topped $146 per barrel. Now prices are falling. Back when oil was in the $140s, I said — in both print and broadcast interviews — that oil prices were running up too far, too fast. I predicted that oil prices would decline to $100-110, based on the fundamentals. Well, we've seen the decline and we're almost there. ~~~~~~~~~~~Special~~~~~~~~~~~ Easily Predict Gains or Losses For Any Household-Name Stock in America... On at least 58 different dates, each year... And how you can now use these same "secret" documents to post returns as high as 400–600% over the weeks ahead...and, for an extremely limited time, you can have three FREE months of "100-F" profit plays delivered straight to your inbox... ~~~~~~~~~~~~~~~~~~~~~~~~~~~ High oil prices have caused big changes in patterns of consumption. Indeed, the U.S. Department of Energy just announced that U.S. oil demand fell by about 800,000 barrels per day during the first half of 2008, compared with the same period last year. This is the biggest volume decline in 26 years, since the recession of the early 1980s. Sure, some headlines describe what's going on as something like the "oil bubble" or "commodities bubble" popping. Some people are talking and acting as if we were going back in time to the last era of cheap energy, cheap gold and cheap commodities. But don't believe it. Don't bet on it. And don't play the markets that way. A Correction Was Due What's going on? We are in the midst of a short- to medium-term correction in the trends for energy and resources. Keep this in mind: This is a CORRECTION, not a fundamental change in the long-term correlation of things. The long-term trends are still upward, in terms of value and pricing. But for now, the money is leaving energy and resources for pastures that look greener. What pastures are greener? Well — speaking of green — the U.S. dollar is strengthening. It turns out that the euro is not the powerhouse currency that a lot of people believed it was. So the dollar has been strengthening against the euro for the past couple of weeks. The Euro Can Go Down And it turns out that euroland has its own economic problems. In fact, the euro can go down against the dollar, as well as up. That's exactly what has happened. Euro down, dollar up. So in consequence, we are seeing the dollar going up, and oil and gold going down. There is more to the equation. The economists are describing a recession occurring in parts of the euroland economic space. Germany — with Europe's largest economy — has been hard hit, so there's been quite a bit of drag on the euroland economy. And then there are indications that the long-awaited U.S. recession is finally just around the corner. Really, we are just in the middle innings of the banking meltdown and housing crash in the U.S. The recent stock market turnaround may just be the seventh- inning stretch. I expect to see more large banks and investment houses either fail or get bailed out before the end of 2008. So with two of the world's largest economies about to enter the doldrums, world markets are seeing demand for energy and commodities slacken. Thus, we have monetary issues with the dollar. And there are demand issues with economic slowdown in two of the world's largest economic blocks. Prices for benchmark items like gold and oil are falling. ~~~~~~~~~~~Special~~~~~~~~~~~ The Single Best Way to Insure You Never Run Out of Money In three simple steps, unleash a steady flow of work-free income...starting with up to 75 automatic "paychecks" deposited directly into your account. Act now or risk missing the next "payday." Find out more about the "Endless Paycheck Portfolio" here. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ But looking in the long-term gold and oil are headed back up, for all the familiar reasons. Really, it's not like anyone is finding new large gold or oil deposits out in exploration land. Indeed, a whole lot of looking is leading to not very much finding in the exploration patch. The big gold miners are pulling ore out of the ground. But generally, they are not replacing their mined reserves through reserve growth or resource expansion. To the extent that the mining companies are expanding reserves in the short term, it's by digging deeper. And that raises the cost structure for production. Rising production costs are eating into profitability. So in the medium to long term, the big guys will have to find new reserves by digging on Wall Street, if not on the TSX Venture Exchange. There is already some takeover activity occurring, but it has been hamstrung by the broken world banking system. It's the same thing with the large Western oil companies. It's a rare oil company that replaces its annual output with new reserves. Until we meet again… P.S.: I truly do believe that we are seeing nothing more than a market correction when it comes to oil. The fundamentals are still all there for another rise in prices. But that's not all. There is a lot more to the story that hasn't hit the mainstream press yet. But when it does, expect the price of oil to shoot well past $150. How far could it go? Click here to be the first to know… |
Whiskey & Gunpowder Special Reports New "Backlash" Set to Rocket Oil Past $150...and Send Gas Soaring to Over $6 per Gallon The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to lemmetry@gmail.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
