Gigem77

Crude Oil, Gold Prices Plummet: Time to Get Cautious About Dollar Bears

You correctly indentify the effects of speculation. But then you extrapolate the extent of this correction much too far. We've seen 4 weeks of a sharp correction in crude after a nearly straight shot 2 year run to the upside. For some perspective, the low in '07 was 51 on the continous contract and this year it was 85. So is this move from 147 to 115 really a " bursting bubble"? It looks more like a typical bull market correction to me. There have been several of this magnitude in the past 6 years.

From August through early October is the seasonally strongest period for crude prices. Corrections in a bull market are sharp , but short. Demand dampening in the OECD has been more than matched by demand growth in the ROW (rest of the world). The EIA reports for the past 4 weeks show increasing US demand for gasoline week over week. As soon as prices backed off a bit, demand responded quickly. So the fundamentals are quite strong for crude and gasoline.

Look at the timeline of events that coincide with the oil correction. The fed and treasury demonstrated that they would not allow a major bank or broker to go bankrupt. The SEC put 19 financials on a protected list. The CFTC threatened to change the rules for oil longs. Then came the big bail out of FRE and FNM. Those actions caused a host of funds that were long oil/gold etc and short financials to reverse their trades. This reversal had nothing to do with fundamentals. That's the major point that I'm making. We saw a radical change in how far the fed and treasury would go to manage the markets and that altered the perception of speculative fund managers.

Also, the banks that loan money to hedge funds were and are strained. So they called in loans, reduced lines of credit and forced hedge funds to reduce leverage. It was not possible for these speculative funds to remain long oil at 10-1 leverage and have enough cash to cover their financial shorts, so they sold. Profit taking, hedge funds imploding, de-leveraging, sector rotation and spec fund shorting are all short term factors. Actual physical demand for crude is still growing, production is flat and the big demand quarter is still ahead.

Finally, ask yourself what OPEC will do if oil does get into the 100-110 range. Do you really think that they will ever let it get below 100 again?

Interest Rates and the Mineral Bubble: The Hidden Parameter

The fed has been decreasing interest rates for some time. So your first premise is wrong. Bernanke has cut rates 3 full percentage points. Commodities have risen in price throughout the period of those cuts. But Greenspan raised rates 14 times between 2004 and 2006 and commodities rose in price during that time frame also. Go back and do your research again.

Name a miner that is "hoarding reserves". Copper is nearing $4.00 per pound and every miner with a pick and shovel is digging as fast and as hard as they can. High prices are a strong motivation to over produce, not hoard.

Crude oil prices soared because demand grew to nearly equal production. Chinese consumption of oil is growing 7.5% per year. The lack of spare production capacity is the key to understanding higher prices.

The Myth of Gold as an Inflation Hedge

The money supply is growing at double digit rates. Here is one chart of MZM from the St. Louis Fed. research.stlouisfed.or...
John Williams says the growth is 16% www.shadowstats.com/al...

The Myth of Gold as an Inflation Hedge

Gold has more than tripled and crude has quintupled since 2000 while the dow has struggled to break even and the nasdaq is still cut in half. Don't let the stock crazies load you up with underperforming paper during the biggest commodity boom in history. The planet is adding 75 million new consumers every year. Got copper? wheat? oil?

Gold Bubble May Be Coming to an End

The marginal cost of production for crude oil has reached 80 bucks a barrel. Annual gold supply from mines is less than demand (in deficit) and that deficit is being made up by the central banks dishoarding. The point being that there is no bubble in a commodity that is in deficit supply or that has a high marginal cost of production.
Now let's look at time. Gold is up 34% year over year despite the recent correction. How is the dow doing year over year?

Gold: Too Volatile to Be a Safe Investment

Risk averse investors look for value and don't daytrade. It seems that the "seekingalpha" pundits are all daytraders. So what has performed the best over the last 1, 5 and 10 years? Year over year, gold is up 34%. How did the dow do ? OOPS! It's still underwater. Since 2000 gold has more than tripled while the dow has barely broken even and the nasdaq is only half of what it was. Crude oil has done even better than gold, rising from below 20 to over 100 in less than 10 years. Copper, nickel and wheat have shown far better results over the last few years than stocks.
Marc Faber and Jimmy Rogers have been steering investors to commodities including gold and are outperforming the "fast money" U.S. stock pundits. Do you own research. Don't accept the punditry on "seekingalpha" as anything other than really poor analysis by daytraders.