Metals

GOLD

The Gold Alarmist (perma bears) point to several factor that could bring about a massive sudden spike in the price of gold which has been stuck in a tight trading band for several months. A “perfect storm”.

Here is what the Gold dooms-day alarmist have to say (typical is Mr. James Dines):

A coming gold spike

Wouldn't you like to get into a bull market before the crowd?The startling new evidence of a coming gold spike...

  • Looming global events are fueling an economic “Perfect Storm”
  • This storm could push gold up to $5,000, and perhaps even $9,500 an ounce on a spike, depending on how governments react.
  • Past gold bull markets turned in profits as much as 42 times over. In fact, a $10,000 investment in ASAin 2010, for example, became $433,700.

“Gold will soar because it’s the primary safe haven against the international storms ahead... “If you thought the financial meltdown of 2008-2009 was a bad time for the NYSE and NASDAQ, wait till you see what's coming!”, says Perma Bear, Mr. Dines.

Some analysts say many signs point to the fact that we’re on the verge of a global currency collapse. Sparked by a global currency collapse, an economic “Perfect Storm” will soon jeopardize scores of U.S. banks... topple hundreds of American and international corporations... and slash the values of many Americans' 401(k)s, IRAs, and savings

“Many stocks will get thrashed in this melee”, . . . so say Gold dooms-day alarmists.

And yet, the financial media is still urging people to keep their money in traditional stocks. As the crowd continues to put its hopes (and savings) into traditional stocks, James Dines urges investors“to join a group of investors who have already started down a better path”...GOLD!

Gold quadrupled by 2008 and grow 7.3 times by 2011.

We could likely see the price of bullion hit panic highs that could well reach $9,500 an ounce on a spike.

For only the fourth time since 1896, gold is going to soar far and above any stock market gains.

Some previous moves in silver and gold mining stocks:

  • 194% on Freeport McMoRan
  • 317% on Barrick Gold
  • 560% on Iamgold
  • 978% on Pan American Silver
  • 1,553% on AngloGold Ashanti
  • 1,596% on SSR Mining (formerly Silver Standard)
  • 2,168% on Agnico Eagle Mines
  • 2,618% on IndustriasPeñoles
  • 4,237% on ASA Gold

The overzealous financial media keeps insisting that the bull market is never going to end. Meanwhile, the economic “Perfect Storm” has already begun its path of destruction…

  • The Euro is teetering on the brink of a major pullback… and the ensuing currency crisis could erase the last decade of market gains.
  • In China, a real estate bubble continues to grow… it already exceeds the overbought levels we saw during the U.S. housing bubble leading up to 2008.
  • And across the globe, countries such as Italy, Argentina, Brazil, India, and Turkey all have worrisome loads of debt… if they so much as figuratively sneeze, their economies could topple.

China is quietly desperate to stop its growing housing bubble.

House prices in large Chinese cities in 2018 were among the highest in the world in terms of price-to-income ratios, with speculative demand from Chinese investors — who see few other good places to park their savings. The result is a staggering 50 million empty homes!That’s more houses than those in London, Paris, Rome, Madrid, and Chicago combined. All sitting empty. All risky debt obligations just waiting to collapse.

This real estate crisis alone could easily trigger a 2008-level disaster that sweeps the globe.

The world’s total debt has now topped more than $247 trillion — that’s much larger than at the height of the financial crisis in 2008.And the International Monetary Fund has sounded an alarm about excessive global borrowing.

Gold has always been the “safe haven” people rush to when they get panicky. When the dominos start to fall this time, the masses will become spooked and fall all over themselves to get into gold, just as they did in the late 1970s. And again in 2001 and 2008 right after market crashes.

Should we get ready for mass liquidations and bankruptcies, sparking double-digit unemployment and comatose consumer spending?

According to Dines, it’sonly a matter of time before these economic tidal waves sweep the globe and hit the U.S.

Gold Price Charts:

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Inflation and Commodity prices have been at sustained low levels for several months. See: Commodity Research Bureau (CRB) Index 

The CRB Index and Inflation, or Lack of It

Long before the Fed got cute and started to follow the PCE price deflator there was the CRB Index. This was your guide for all things inflation related.

It did not get kicked to the curb when the Fed found a better measure. It was adopted by Reuters/Jeffries and carries on today. In fairness, this index measures commodities prices, both hard and soft commodities, so it is not all encompassing like the PCE price deflator. But it does give a good general direction of inflation expectations.

The chart below shows the CRB Index since 2011. Notable is the downward drift through to 2014 and then the plunge to a low in early 2016.

The Index bounced then and inflation expectations started to pick up. This of course got the Fed all hot and bothered and they started talking about rate increases. There is a funny thing about talking about raising rates. This impacts expectations of inflation going forward. And what was a strong bounce in the CRB Index has now leveled off and it may be turning lower.Chart 2011 thru 2017

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The direction of inflation has been pretty easy to see with hindsight on this chart. Every time the CRB Index has crossed it’s 100 day SMA (shown as a 20 week SMA on this chart) there has been a change of direction in inflation.

Some short and others long, but the major crosses have run. One may be happening now, with a cross down. Of course, the CRB Index might just continue to hold and vacillate around the SMA line as it has done since July.

But separation would be an indication that inflation expectations are in check. Watching momentum will give confirmation. A continued move of the RSI below the mid line and the MACD below zero would support a deeper move, not just consolidation.

Maybe the Fed has already done its job.Chart Nov 2018 till May 2018

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ZINC

Where is the market demand for zinc? The magic metal

So, the shorthand way of answering that is, “zinc demand is overwhelmingly an industrial story.”

If we have big infrastructure investments and lots of construction and economic activity, there’s more zinc demand… mostly because of galvanizing.

And yes, those shortfalls in the warehouses of the London Metals Exchange are real — as are the pricing increases seen recently. Zinc is still well short of where it was in the 2005-2007 peak, when China was exploding with steel demand and getting everyone excited, but it has certainly been rising… this chart shows that.

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It certainty looks like the shortage is going to get worse!

There’s no way to turn the supply spigot on. It’s gone from 1.2 million tons to less than 480,000 tons. That’s a 50% drop in the last 4 years.

The price of this “magic” metal is up over 60% in the last year. But with its supply gap surging to over 4 million tons in the next 4 years as demand continues to increase …  zinc’s bull market has a long way to go.

I have no idea whether the LME warehouses accurately reflect global stockpiles of zinc, but those warehouses are getting to have a bit of an echo in them at this point — here’s the five year chart of the warehouse stocks:

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50% of ALL the zinc mined each year is used in galvanizing … the process used to coat iron and steel to prevent it from rusting.

So, this ‘magic’ metal is in every bolt, nail, hammer, bridge, pipe, train and piece of industrial machinery needed for this $1 trillion infrastructure plan to move forward.

Miming firms have aggressive plans to increase excavation of zinc.

OK, so if they’re “ramping up production” these are not brand new discoveries — that means someone probably identified the zinc at least several years ago… building a mine isn’t quick or easy.

While most of the world’s largest deposits of zinc are in Australia, India, Mexico, Peru and Sweden and . . . now, in a big way, just north of the U.S. border.

The surest way to zinc riches is to invest in mining pioneers; especially one miner in the US that is sitting on 22 million tons of recoverable reserves of gold, silver, and, of course, zinc in its mine.

As this zinc shortage continues to spiral out of control like experts forecast it will, the profits for early investors will be through the roof.

Zinc is at about $1.20/pound now, and a metric ton is about 2,200 pounds,

so there’s not some magical exponential increase in zinc production coming — they are trying to ramp up zinc production by a meaningful amount.

If that picks up, zinc and copper prices will rise. If China sinks into recession and copper falls a dollar and zinc stays steady, things will be much less pretty.

Mining is not scalable, you’ve got to have the deposits and you’ve got to produce them, which means moving tons and tons of rock, and it takes a long time to develop and improve mines.

If copper rises nicely and zinc goes to $3 a pound, miners’ earnings could easily double or triple, and as long as investors don’t start to panic, with every volatile gyration, a buy and hold strategy makes since.

 

The Cobalt Price Bubble Just Burst

Is Lithium next? It’s certainly looking that way.

Lithium investors are panicking!Last year was terrible for lithium.

And so far, 2019 hasn't treated them any better.

Since the beginning of 2018, the price of lithium has fallen by as much as 30%.

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Lithium 5-Year chart:

And Now, the price of cobalt — another vital component in lithium-ion batteries — has plunged almost 70% since March.


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What we're looking at here is a market bubble that just popped.

Will lithium follow Cobalt all the way down?

Well, you can put down that paper bag you're hyperventilating into because, no, a collapse of lithium prices is unlikely to follow. And there are good reasons to be confident about that.

First, we should consider that lithium and cobalt are two different markets.

Production of lithium is highest in South America. But economically viable lithium resources are found on every continent on Earth (except Antarctica).

Cobalt production, on the other hand, is only found in a handful of countries. Half of the world's cobalt comes from the Democratic Republic of Congo alone. This makes cobalt supply much more susceptible to unplanned outages.

But most important are the materials' end uses. About 40% of the world's lithium production goes into making lithium-ion batteries. The same is true for cobalt: Around 40% of the cobalt produced goes into batteries.

But the remaining 60% (the majority) of each commodity is spread around different applications.

Nearly 25% of lithium production ends up as grease (yeah, grease, look it up), and about 30% of cobalt production is used as a metal hardener.

Point is, even though both metals are vital components of lithium-ion batteries, they have other lives outside of the electric vehicle market. So they don't affect each other very much beyond the battery space, which is limited.

But maybe the main reason lithium investors shouldn't be concerned: Cobalt was hyped.

Last year at this time, every financial media outlet was talking about cobalt. And all the hype created a bubble.

Now, lithium was hyped, too. There's no doubt that lithium was even hyped up much more for much longer than cobalt.

But again, the lithium and cobalt markets are different.

Cobalt is (today) much more susceptible to market bubbles than lithium. And that's what happened. Just compare that cobalt price chart above to the classic model of a market bubble. It's not perfect, but it is looking pretty close to me:

There's a silver lining here...

In fact, we'd call it a gold lining.

Since the price of cobalt has pulled back — and there has been a tandem downturn in lithium prices since the beginning of 2018 — we can expect the price of lithium-ion batteries to come down.

That's good for consumers. But it could be a paradigm shift for the auto market overall.

You see, retail prices for electric vehicles are still comparatively higher than gas-powered cars. And a lot of that price can be attributed to the EV's battery.

If the recent price drop in cobalt — and tandem downturn in lithium prices — can push the cost of EV lithium-ion batteries low enough, that could be the axis at which EVs finally become comparable to gas-powered car in retail price.

That's the day the electric vehicle market wins the revolution.

Electric vehicles have struggled against one resistance after another. But there is no revolution without struggle.

The EV's day of victory is nigh. We'd call that a pretty good gold lining.