We came across news today that Australia's conservatives are looking to mount an offensive against the current Parliament leadership and position the country as much more business-friendly in the process. The reporting from Reuters on this story (see article here) is very good and indicates that carbon taxes and the country's idea to tax excess mining profits could be shelved for good. This would be extremely good news for names like BHP Billiton (BHP) and could justify the company further expanding its mines in the country as well as developing new ones, which could help reinvigorate the economy.
Australia is important for the commodity world as it provides leadership on taxation and development. If Australia moves back toward the business-friendly side of the equation then nearly every other commodity-producing nation must too, for fear of losing business and development capital to the Aussies. As Australia and Canada go, so too does the world. This is important to remember at all times in the industry.
Chart of the Day
All metals are under pressure and this morning we turn our attention to palladium, which like platinum before, finds itself at a key support level that it briefly broke below this morning. If precious metals and platinum are going to continue lower, why shouldn't palladium? The bears might very well rotate into this trade and try to break palladium here, and we will be watching that this morning.
Commodity prices this morning are as follows:
- Gold: $1228.90/ounce, down by $46.20/ounce
- Silver: $18.545/ounce, down by $0.981/ounce
- Oil: $94.89/barrel, down by $0.43/barrel
- RBOB Gas: $2.7282/gallon, down by $0.0092/gallon
- Natural Gas: $3.679/MMbtu, up by $0.032/MMbtu
- Copper: $3.0385/pound, down by $0.034/pound
- Platinum: $1324.40/ounce, down by $26.10/ounce
The gold market has been turned on its head and we continue to run across articles discussing the outflows from gold funds, such as the SPDR Gold Shares (GLD). It is as if gold's problems are compounding on the way down and some of this can be blamed on the ETFs themselves. Yes, some are based solely on paper and roll over their contracts each month, but others are based on holding the physical metals themselves and on the way up they help distort the market by offering investors an easy way to gain exposure to markets that otherwise would be cost prohibitive to enter and exit. The liquidity draws money in during good times and allows for a quick, hasty, and usually unruly exit on the way down. The selling is compounded as gold falls because the physical gold funds are required to sell into the market to cover redemptions and the moves are compounded to the downside. It works both ways, though, and these ETFs have simply enabled the pendulum to swing a bit further in each direction.
It is not just gold that's affected by this, but other metals as well. Everything has a physical fund somewhere, and silver is the next one that comes to mind. The ETFs should be avoided at this time, whether they are sellers of the metal to balance their books or a trust -- think iShares Silver Trust (SLV) -- as should the physical metals. If you own the physical metals, hold them, but adding during these uncertain times is not the hand to play right now.
Whereas gold has been a huge loser, UR-Energy (URG) has been a huge winner. Readers will remember that we have correctly called on two separate occasions future dips that allowed entry into the shares either at or below the $0.80/share level. Although we are awaiting a general industry pullback for the summer doldrums that usually occur, this one appears as if it might defy the annual summer downturn. The shares hit a high of $1.30/share yesterday before finishing the session at $1.28/share up just over 7.50% on extremely abnormally high volume of 981.8K. This is a classic uptrend and the shares are back to levels seen prior to the Fukushima nuclear disaster in Japan.
It took a few times to break the $1 mark and a few more to break above the $1.20/share mark, but shares are moving higher and the bulls are running rampant here. Bullish is the state of mind.
Source: Yahoo Finance.
Oil and Natural Gas
One of our biggest disappointments over the past two years in regard to stocks we have purchased is EV Energy Partners (EVEP), which saw its units get a jolt yesterday as the stock price jumped $2.64 (7.89%) to close at $36.12/unit on volume of 531.1K. This was one MLP that was oversold, just one among many, but the severity of the sell-off here was extreme and the company will be presenting at the Credit Suisse MLP and Energy Logistics Conference today. After yesterday's conference, which seemed to go well, we could see further fireworks should a couple of people in the audience like the new story. Still awaiting a Utica acreage sale here, word on if it can obtain bank financing, and whether EVEP will maintain its distribution. We think the first is the biggest question mark with the second two being pretty safe bets.