OIL, GOLD and the US DOLLAR

Good article and would suggest shorting these oil refiners if OPEC cuts, or even if they dont.

With spreads getting killed, earnings next quarter are going to be pretty rough..and plenty of the stocks near all time highs.

I think you may be right..

As for below, while I post it, I remain NOT necessarily a "gold bug" I do believe gold will remain strong long term, and this it should also be boosted sort term due to seasonal reasons...

Dow Theory Letter's Richard Russell led off his Friday comments with a statement of fundamentalist gold sympathy: "The latest is that yesterday December gold (this is the active month) finally closed above the psychological 700 mark. Now it only remains for gold to advance to a new high above the 2006 high of 728 ... Classic paintings, gem stones, diamonds, collectibles, seaside real estate, and gold are rising steadily in terms of paper. The incredible fraud of fiat currency goes on and on. It will continue on until well, until it morphs into dreaded hyper-inflation."

More on what could be an interesting week in this area...

Gold eyes 26-year high

LONDON: Gold traded above the key $700 level on Monday, within sight of a 16-month high, as a weaker dollar and bullion’s safe-haven appeal attracted fresh buying.

The metal is closing in on a 26-year high of $730 an ounce hit in May last year and is roughly $145 below its all-time high of $850, fixed in London on January 21, 1980. Spot gold touched an intraday peak of $706.60 before paring gains to $703.45/704.05, still up from $699.90/700.70 quoted late in New York on Friday, when it rallied to its highest since mid-May 2006 at $707.10.

Friday’s unexpectedly weaker US non-farm payrolls data dented the dollar, making dollar-priced gold cheaper for holders of other currencies. The latest data showed gold held in New York-listed StreetTRACKS Gold Shares, the world’s largest gold-backed ETF, rose to 549.42 tonnes, another record high, up 33.98 tonnes or 6.6 percent from the start of the month.

In one of the latest moves seen as bullish for the price of gold, Australia’s Newcrest Mining Ltd. said it planned to raise A$2 billion ($1.65 billion) via an offering of new shares to fund the closing out of gold hedges and pay back debt.

Newmont Mining Corp, the world’s second biggest producer, said in early July that it eliminated its entire 1.85 million-ounce gold hedge position. Gold miners typically hedge more when they think prices are in long-term decline, but like full exposure to a rising market.

In other metals, platinum hit a one-month high at $1,295.50 before easing to $1,290.50/ 1,297.50 an ounce, compared with $1,286.10/1,293.10 in New York. Palladium inched down to $331.60/335.60 an ounce from $332.50/336.70, while silver was at $12.54/12.57 an ounce, versus $12.51/12.54.

Chinese demand, weaker dollar support copper: Copper prices rose on Monday as expectations of strong demand from China and a weaker dollar offset worries over the health of the US economy, traders and analysts said.

Demand for industrial metals is mainly driven by the world’s biggest consumer of the metals, China, which grew 11.9 percent in the second quarter. Three-months aluminium was down $14.5 at $2,435/2,440 as a massive inventory rise weighed on prices.

Stocks of aluminium in LME-registered warehouses rose 11,700 tonnes to 878,625 tonnes, their highest in more than three years. Zinc lost two percent or $55 to $2,720/2,740 while lead was $20 down at $2,855/2,865 and nickel was 200 softer at $26,800/26,999. Tin was $150 higher at $14,800/14,900. reuters

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The amazing upshot of this is the blunt appraisal that the figures are simply  are not going to be actually produced.OPEC numbers are now routinely viewed as bogus.

Crude futures mark a record closing level

Benchmark price passes $78 as traders digest output hike

By Myra P. Saefong, MarketWatch

Last Update: 4:33 PM ET 9/11/07

SAN FRANCISCO (MarketWatch) -- Crude-oil futures marked their highest closing level ever for a benchmark contract on the New York Mercantile Exchange Tuesday after some of the world's major oil producers decided to raise their daily output by 500,000 barrels per day, starting Nov. 1.

Traders had a difficult time digesting the news. Initial reports following the announcement from the Organization of the Petroleum Exporting Countries weren't clear as to whether the increase was to the cartel's official production quota or to its actual output, which has been estimated at about 1 million barrels above the quota.

But "what OPEC did was raise its production target from 25.8 million barrels per day to just over 27.2 million barrels per day -- an increase of about 1.4 million barrels per day," said Kevin Saville, a managing editor at Platts, who is on site at the meeting in Vienna.

"They took a two-pronged approach to get the new number," he explained in emailed comments.

"First, yes, they 'formalized,' if you will, their current overproduction, which was roughly 900,000 barrels per day. Then on top of that, they added 500,000 barrels per day in new production," he said.

"So, on its face, this wasn't just an empty gesture from OPEC," he said. "It is saying it will add 500,000 barrels per day of new oil on the market from Nov. 1."

Ignoring the facts

Still, crude for October delivery tacked on 74 cents to close at $78.23 a barrel on the New York Mercantile Exchange. That surpassed the previous record closing level of $78.21 for a front-month contract seen on July 31 of this year.

October crude had climbed as high as $78.30 during the regular trading session. The record level for a front-month crude-futures contract in a regular session stands at $78.70 a barrel, reached on Aug. 1, with the all-time high for electronic trading at $78.77.

Prices likely found support late in the session from doubts that OPEC will be able to raise production by that much, some analysts said.

"Exactly how much of that 500,000 barrels per day will actually hit the market remains to be seen," said Saville. See Commodities Corner for full story.

Data watch

Traders also kept watch on updated data on U.S. petroleum supplies, covering the week ended Sept. 7, that will be released Wednesday in separate reports from the Energy Department and the American Petroleum Institute.

"If the EIA data is ugly tomorrow," Ryan Oil & Gas Partner's Ryan said he wouldn't be surprised to see oil prices head for $80.

The Energy Department reported last week that crude supply fell 3.9 million barrels for the week ended Aug. 31, while gasoline stocks fell by 1.5 million barrels. See full story.

Analysts at Alaron Trading expect the latest figures to show a decline of 2 million barrels for crude. MF Global predicts a drawdown of 2.1 million barrels.

Most estimates call for what would be a sixth-weekly decline in motor gasoline supplies. They're likely to have dropped by 1.5 million barrels last week, according to Alaron, or by 1.8 million barrels, according to MF Global.

Tight global energy supplies are expected to keep energy prices high through 2008, the U.S. Energy Information Administration, the Energy Department's reporting arm, said Tuesday in a monthly report. Read more.

On Nymex, October reformulated gasoline closed up 0.25 cent at $1.9811 a gallon. October heating oil closed at $2.1827 a gallon, adding 1.11 cents.

Natural-gas futures, which gained more than 7% on Monday, gained 4.3 cents to close at $5.934 per million British thermal units.

The market remained concerned about any potential storm in the Atlantic that could disrupt energy production in the Gulf of Mexico.

In Tuesday's trading in energy equities, oil and gas stocks gained, cueing off strength in the broader stock market, with the Amex Oil Index ($XOI) up more than 1%. See full story.

Elsewhere on the commodity markets, gold futures closed above $723 an ounce, buoyed in part by the dollar. See Metals Stocks.

Interesting..

With oil near highs, NG still sucking wind and unleaded isnt over 2 bucks, meanining margins arent going to be so awesome even with high high oil.

I dont agree with the move in gold, but thats for another conversation.

 One logic to gold is of course that it is a technical bounce, backed up by a fundamental judgment on the fate of the dollar presuming a rate cut. The dollar could bounce if Bernanke surprises the market (or at least disappoints it, with only a 25 basis point cut. That would be bad for US stocks but not so bad for the dollar, which is already priced with at least that cut, and probably more expected.

 I am in the bearish camp on the dollar (long term) and hence the bullish camp regarding gold, but not based on short term considerations.I just think the dollar is going to continue to be viewed as a wasting asset,as it truly is,  and there will be a continuing move out of it into other vehicles, by China and others.

 As for oil, you have widespread disbelief that OPEC announces figures that bear any resemblance to reality, in proven reserves and in production. The figures are very suspect. No one really knows what is in the ground, but few believe Saudi figures.

What one does suspect is that Chinese demand will not abate, and in fact will continue to grow exponentially.

From a newsletter,  I tend to agree with it in general...

The [Austrian Endgame] is rooted in a basic observation of Austrian economics, articulated by Ludwig von Mises: "There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." Here is how it works: 1. In attempting to stave off recession or depression, the powers that be induce a credit boom through monetary stimulus. 2. The following boom is enjoyed at the cost of a massive debt buildup. 3. Excesses of the credit boom eventually lead to inflationary pressures. 4. The powers that be find their hands tied; they cannot kill rising inflation without killing the debt-laden economy at the same time. 5. The Fed's choice thus becomes take real steps to reign in inflation and destroy the economy, or let inflation run and eventually destroy the currency. Anchors away We are now heading into the thick of stage five. The sharpest evidence for this is gold above $700 (on the way to new all-time highs), the dollar at fifteen year lows (bye-bye long term support), and loud clamoring for a Fed rate cut from nearly all parties, even as the greenback is getting pitched headfirst down a well. (There is plenty more evidence too of course. Those are merely the most visible symptoms.)

Yep, sounds like everything we have been saying for a while huh?

I dont see the correlation between gold and the greenback, such things are of old standards and economies, especially with no country that I know of on any gold standard.

To me gold is up because people flock to it in these scenarios and when there is expansion globally.

I dont know if we take the plunge in 2 yrs or 4 yrs or 10yrs but there will be a time when we are forced to pay for the floating of our currency and the massive ammt of debt we have, plus the foreign control we are giving by having our goods and capital be so cheap.

Not good..yet only think-tankers and off the street kind of guys talk about this.

 The old saying of "put ten per cent of your assets in gold and hope they are not needed" is in play perhaps. The relation between gold and currency is peculiar at best...I doubt many people know or recall gold bullion possession was even outlawed by FDR., and only allowed to be purchased by Nixon.

"up until 1972, when then President Richard M. Nixon closed "The Gold Window" at the New York Federal Reserve, foreign nationals could show up with $35 in U.S. Currency and get an ounce of gold. (American citizens would go to jail for up to ten years if they possessed gold bullion!) 

 What people do know is that the amount of anything fiat currency can be traded for has declined.

 And I am with you in not knowing when the ultimate bill will be due for the cheapening of the USD by the Fed...

 In truth, doing so was not perhaps the worst that could have happened, when one considers the possibility of a true financial collapse caused by Russian defaults, the LTCM fiasco, or any of the other problems that such actions "solved"  if only temporarily.

  And frankly when everyone starts bailing out of the dollar, it may be time to buy it... but for now, I remain bullish on gold, on oil (for more fundamental reasons:there is only so much actual petroleum in ships, and only so much refined product in pipelines, and that is not subject to the whims of Ben Bernanke)... I have been bearish on the USD  for some time and will remain so in the short term, but currencies always are ready to surprise everyone.The erosion in the USD, although discussed for some time in more academic circles, as you mention, is now hitting people very practically in the real world, as any Us citizen who has gone abroad lately can attest.

From a daily report....

Financials      

A resilient stock market is back up towards the higher end of its wide consolidation pattern.  Shorts should be developed as the market's ability to test contract highs (only 80 points away on the S&P) is unlikely given the current concerns in the market.  The Fed meeting on Tuesday is by far the most critical meeting in years as the expectations for a cut is built into the market and the potential for a surprise is undeniable.  The Fed is forced to make a move here to avoid utter market confusion, but it is safer for them to cut 25 basis points than to rattle the market by cutting any more than that.  A 50 to 100 basis point cut would likely bring about mass panic in a market that wants to see some relief in the housing sector but also wants reassurance from the Fed that the situation is not completely out of control. 

Bonds have been selling off from the highs set earlier this week as the reality of a massive cut is becoming less and less likely.  The dollar weakness is difficult to argue against fundamentally, and the market may see several hundred points down before bottoming.  The gut says to buy up calls in the dollar (puts in the euro) despite the technical outlook.  The Canadian dollar has broken out to the upside once again and so good at faking the trend shift that I feel compelled to continue to play puts at these levels.  If we break above $1 then the U.S. government seriously needs to take some currency controls. 

That is hilarious, IF the greenback falls below par with the CDN dollar than currency controls are needed...good grief.

Currency controls have been needed for 3-4 yrs.

The consequences of government folly over the years:

The Canadian dollar hit parity with the greenback Thursday for the first time in more than 30 years as the U.S. currency extended its trend downward.

One U.S. dollar would recently buy C$1.001, down from C$1.0153 late Wednesday. The Canadian dollar was last trading one-for-one with the dollar in 1976, during the last days of the Ford administration.

"The momentum is still red hot behind the Canadian dollar," says Derek Burleton, senior economist at TD Economics in Toronto.

As a resources rich economy, Canada benefits from the elevated price levels for commodities such as oil and base metals, he explains. "Right now there is nothing to stop [the Canadian dollar] going even higher," he adds.

The CurrencyShares Canadian Dollar Trust (FXC - Cramer's Take - Stockpickr - Rating), which tracks the value of the Canadian dollar, was rallying 1.4%, in line with the spot market action.

Elsewhere in currencies, the euro was soaring to yet another all-time high against the U.S. dollar, recently trading at $ 1.4087, up from $1.3962 a day earlier.

News out of the U.K. speculating that the oil-rich nation of Saudi Arabia may cut the currency peg to the U.S. dollar put the greenback under pressure. Earlier this year neighboring Kuwait did decide to do the same.

Currently, the dollar remains as the primary foreign-exchange asset held by world central banks as a reserve. But moves such as those by Kuwait and increasing dissatisfaction with U.S. fiscal policy may mean the euro could soon take that role.

It is obvious both the FED and our government could give two shits about our currency as long as GDP growth and inflation arent damaged.

Stupid idiots..

A gloomy scenario's steps simplified...

1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5. Lower profits leads to lower Federal Tax revenues.
6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

Sheesh remember when a gallon of gas was $0.95, or a pack of smokes was $1.10 ?

From a roundup....not an endorsement, but I do agree with the gist of it...

The dollar has broken through all conceivable support and is likely to test the depths in which it can fall before the European Union steps in to prevent a complete shutdown of their key export businesses.  I would continue to buy long term call plays in the dollar and scale into them as the market falls, with a strong feeling that a fresh bottom support is not too far away.  The Canadian dollar has zoomed to par with the U.S. dollar despite declining retail sales and a mediocre economic outlook.  The basis for the price rally - the largest two week rally in its history - has been due to the rise in oil and metals prices (two key commodities produced by the country).  This association is relative to the economic stability of the country and its currency, but does not suggest this move will continue much further.  Short the Canadian aggressively with defined risk option plays and get at least a 300 point retracement out of the deal.  The gut says that this may be a case of a breakout causing a true trend reversal (a spike high of sorts on a long term chart) and is worth a hard look for long term bear plays.

Vermeer, is there such thing as the concept of PEAK oil? or PEAK gold for that matter?

When I ask "is there such thing," I mean what are your thoughts on those theories?  IS there only so much of that precious metal, or natural resource available?  If so, how does the world governments continue to suppress their value?  If not, how does the world governments hide their abundance?  

Please respond at your own leisure.  Thanks in advance.

Wiz