Dan Caldwell

Gold and Silver About to Hit Resistance

From a technical perspective is silver about to hit resistance or is it about to complete a bullish cup and handle pattern? IMO it's the latter - not the former.

Interest Rates and the Mineral Bubble: The Hidden Parameter

Culturally, gold is an inflation hedge utilized by peoples in developing countries. As more and more people OUTSIDE of the US upgrade their lifestyles and move up into the lower middle class it is not uncommon for them to keep 10% of their wealth in physical gold. Worldwide demand is rising incrementally even as mining production slows. Also, one oz. of gold has historically been worth 15 bbls. of oil, which would place the equilibrium price of gold at $1,650/oz.

Silver is an industrial metal more than a precious metal, and from the silver industry's own annual report silver short interest is net short more than a whole year of production. Almost every oz. of silver that has ever been mined has been used, not hoarded, and mining production is dropping even as industrial demand applications are rising. IMO silver will be the next commodity to face a parabolic run when people short the market suddenly being asked to deliver on their contracts and they can't find physical supply.

Get Out of Commodities - Barron's

The author may have a good point EXCEPT for the following:
1) Capital Expansion: DEER, CAT, BUCY, JOY, etc. are enjoying phenomenal growth because farms and mines are buying their equipment as they expand production to try and meet demand.
2) During the strong dollar 10 year run in the 90's the commodity sector stagnated and companies contracted to try and stay alive. The deeper you push a cork underwater the higher the parabolic rise when the pressure is released. Adjusted for inflation, commodities are just now getting back to 100 year "norms", and the pop will take them higher.
3) The public and most funds have not yet participated in the commodity boom as evidenced by their total portfolio percent exposure to the sectors. We can't call it a bubble until we see greater participation by the public at large.
4) The mines, farming, and energy services sectors are the only sectors hiring at record levels, another sign that the top is not yet in.

Why Commodities Are Likely to Struggle in 2008

A good opinion BUT one I agree with previous comments about leaving out one important element - the scarcity of resources in the face of expanding global demand. The author's analysis would be accurate if usage in the USA was the only game in town, but I'm a 20 year veteran of the copper industry and the entire US and global copper infrastructure was allowed to deteriorate in the 80's and 90's because of a huge stockpile buildup that didn't anticipate the reduction in demand that followed the advent of fiberoptics and cellular phone technology. That stockpile has been used up, it takes 7 years to bring a new project (or restart existing mines) online, IF you have access to high grade ore which is getting harder to find. A new house or condo uses +/-400 lbs. of copper and the middle class in China are moving up into 8 million new condos a year. This doesn't even factor in the similar numbers for the India or E.Europe buildout or the eletric grid infrastructure buildout in China, India, S. America, or E.Europe, which is adding more pressure to actual copper demand, as more and more people outside of the US desire to upgrade their lives to US standards of living.