Gold, Commodities and Markets

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The gold price has outperformed all other commodities and markets during the last twelve months. It’s not surprising when you look at the uncertainty in stock markets and commodities markets. In contrast gold is giving investors plenty of certainty.

Last August Bill Bonner wrote in the Daily Reckoning:

“On Friday, the meltdown of gold and commodities continued. Oil slipped $1.35. The commodities index, the CRB, fell below 500. The dollar rose to $1.46 per euro. The pound is losing value faster than at any time in 37 years. And get this – gold dropped $21 to close below $800, at $792.”

In all honesty he could have been describing any day between then and now. So has gold, commodities and the markets travelled since then?

Well, gold is now at USD$856 an ounce. That’s an 8% rise in the price of gold since August 19th. And in Aussie dollar terms it has done even better, rising from $920 an ounce to over $1,300 today. That’s a rise of over 40%.

The stock markets, as you are no doubt aware, have not performed quite as well. The S&P/ASX200 is now down about 30% during the same timeframe.

And if you look at the chart below you can see he CRB futures index has more than halved…

Chart for CRY0

While the pound sterling has almost collapsed and the Euro is significantly weaker against the US dollar. Pound sterling has been hurt especially hard due to the hopeless state of its economy and the flight from any risky looking currencies into the US dollar and the Japanese Yen.

It is hard to know when the current downturn in the market will end. Global indices are within touching distance of the November lows. The key events will be whether companies release earnings results that are better or worse than the market expects. And how much further damage will be done to the global banking sector.

As we mentioned during the week, Australian banks are not as safe and sound as we are being led to believe. So don’t be surprised to see some nasty stories during their earnings announcements.

The Most Important Money Morning Story This Week: There has been plenty of talk for the last year about the stability of Australian banks. Overseas, banking collapses have been a monthly occurrence. So far, our banks have been lucky. However, a quick look at the balance sheets of Australian banks reveals a picture that is not quite as idyllic as the banking executives, regulators and government are making out. Is it time to panic and pull out all your cash? Or is that just an over-reaction that will make things worse? This week we looked at the banking sector to see just how close to the edge it is. Click here for more…

Monday: This is probably one of the worst charts that you can find on the global commodities markets. It has been declining since early July like many other energy-related products. First it fell sharply during July, then at a slower pace but following a clear and regular bearish trend. Click here for more…

Tuesday: You only have to look at the fear in the politicians eyes at the prospect of a company going belly-up or laying off staff. Last Friday’s The Age newspaper ran a story with Julia Gillard pleading with employers not to get rid of “skilled staff.” We’re not sure if she means all the unskilled staff can get stuffed or not. Click here for more…

Wednesday: Now the immediate targets for the price action are the lows hit in November, first at 3,353 points which is the lowest closing price of the year, and then 3,217 points that is the lowest during intraday session. Respectively those levels are 3.53% and 7.45% away from the opening price this morning at 3,476 points. Click here for more…

Thursday: So with such a small gap between assets and liabilities how can the banks lend more money? They can’t. In fact, when you consider the falling asset values in the property sector, many of the loans that the bank already has on its books are likely to be in negative equity if the underlying asset had to be sold. Click here for more…

Friday: With six and a half billion people in the world, the demand for energy has never been greater. This demand – especially from China and India – is the hidden engine behind Australia’s economy. One Perth based company is perfectly poised to capitalize on the voracious demand for energy. The “energy metal” they mine is critical for sustained renewable energy. Click here for more…

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

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