Dubious outlook for metals

The current gold market suggests we might be looking at a change in fortunes for the gold market. This next week will be telling; but we might be looking at an overall weak metals market. This would spell a more compelling argument in favour of agricultural commodities in the short term. The problem of course for gold - despite the debasement of global currencies - is the very strong underlying fundamentals of global market liberalisation that have continued unabated since the 1990s, if not before. Earnings in Western countries have remained flat, which means the productivity gains have accrued to businesses to be sure, but also to 'cheap labour' in the third world, whilst more Westerners live off benefits.

We can probably expect a weaker commodity outlook for the next year, but we might see some selective recovery before long, i.e. copper. This of course will not be the end of the commodities story. We are still looking at a commodities 'super-cycle', but things will be off in the short-run, at least in metals. I tend to think agricultural commodities will hold up better, but this is not my market of interest generally.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The gold price set to rally in coming months

I am expecting a rally in gold prices in the coming months as the central banks deal with their financial crisis. The gold price has been consolidating around $US1700/oz, and this is a support level. I am ultimately expecting the gold price to reach a level of around $2400/oz.

Check out our gold equity blogs for the best entry into Australian and Canadian stocks. Not all gold stocks are over-priced. There is some good value among the emerging stocks; though one needs to look for those stocks which are sufficiently large or supported by private equity to raise fnance in these troubled times. I've seen a number of stocks simply collapse because of difficulties raising capital. One which we like is Base Metals Ltd (BSL.ASX). I would not be surprised to see this company go into voluntary liquidation in coming months if it cannot attract the support of a Asian investor/metal trading house/base metal consumer. The company appears to be under-capitalised; not a desirable quality in the current market with the strong $A.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices find support

Gold fell to $1540/oz overnight before recovering to $1615/oz at the end of trading. As is typical with commodities, the spot price temporarily breached its support level of $1580/oz. We can expect to see the gold price consolidate at these levels before rising to new highs. Unsurprisingly, the Dow Jones Index is up 226 points today, after reaching an important support level 2 days ago of 10,600pts. The market can be expected to remain volatile in the short term.

Importantly, whilst there has been a 20% correction in the gold price, the weakness in the AUD has resulted in the gold price in AUD terms falling to just $1650/oz. These are still very good gold prices upon which producers can sell output. Its not over yet.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

EU demands gold reserves as security for Greek debt

This announcement that Greece and other countries in the EU are being asked to support future loans with their gold reserves has to be seen as good news for the gold price outlook. It provides some legitimacy for gold, after long considered of no value.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Rare earth elements (REEs) - demand side remedies

The Japanese government is planning to spend Y166 billion on 160 projects to reduce the companies reliance on Chinese rare earths, as well as to advance certain global projects which in the long run would reduce its reliance upon China as a supplier of rare earths.

The biggest beneficiary of China's curtailment of rare earth exports is Lynas Corporation, the ASX-listed company. If I was a Chinese regulator, I would be investigating the share register of Lynas Corporation to see if there are any Chinese shareholders engaging in insider trading, as its so easy to profit by trading in a third-party jurisdiction from actions taken in another. This is why regulation is mere rhetoric. The auhorities are so far behind the times. I laugh when the authorities were monitoring share trading of executives on the main exchanges, whilst people were no doubt trading in 'derivative exchanges', i.e. Contracts for difference. One does not even have to trade the exact same security, just a security which is related to it. i.e. Rare earths is to Lynas what the 3mths platinum contract is to the spot platinum price. Just find a causal correlation and you can profit.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices set for another rally - Feb 2011

The start of a mighty rally is about to unfold. The following charts show on a short term scale that gold has broken a recent short term high to achieve a new high, and that it has in fact changed trend. The 2nd chart shows the long term trend, with the prospects for a rally up to around $1,800/oz expected over the next 12 months.

We will be looking for gold to rally to the previous highs around $1425/oz.

Visit our speculator's blog for the best entries into exploration stocks, since this end of the market is the most undervalued, and stands the best chance of benefiting from resource upside, takeover activity, revaluation of resources, increases in gold prices, including the opportunity to lock in high priced gold hedges.

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Commodities taking a lead - gold and copper

I am about to go out hiking, however I note that gold is breaking out into a new uptrend. We have also seen copper prices reach new highs of $4.63/lb. These are what we might regard as the post-Xmas commodity-equity market rush of blood that we like so much. Charts to come later. Its a beautiful day!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices set for another rally

Gold prices have bottomed on Friday, and we have seen a rally of $21/oz in Friday (night) trading in the Comex market. The implication is that gold has found support on its long term uptrend, confirming what we always knew was going to happen; that gold was going to rise to new highs. Our interim target is $2,400, however in the medium term we can probably expect a move to $1800/oz.

There are a number of factors giving strength to gold. The prospect of failing monetary policy demanding any effort by the US and other countries to stimulate demand. There is the prospect of escalating tensions in the Middle East. Oil and gold prices alike are likely to be very strong in the next year.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Outlook for uranium on the slide

I have not been a big supporter of uranium stocks and the recent news that China has developed a process for reprocessing uranium could only add to the downside. There is good reason for thinking that China will explore this process route to reprocess nuclear waste for power generation, however at the end of the day, there is no shortage of uranium resources. I think Australia alone has enough to last the world 7,000 years, and that is kind of by tripping over the stuff accidentally looking for more 'PC-friendly' minerals.

The problem for uranium is not the fuel cost it is the capital (plant) cost. The benefit is that reprocessing will at least mean reduced waste disposal issues, and probably total desensitisation of that issue, though of course waste and reprocessed fuel still has to be transported to and from a centralised facility.

Uranium prices are still high I think but that is just because of the high cost of alternative energy resources. If more nuclear plants are built, other fuels will fall. The problem is - too many people are opposed to nuclear. One of course has to worry about the management record of Chinese plants; particularly as the management of Japanese plants has often been shaky. There have been a few scares in Japan, but the new designs in China ought to be 'fail-safe' in design; assuming they are properly constructed 'to design'. That is the worry.

The Japanese will be very nervous since they are down-wind. The prospect of China importing a lot of fuel has to be good for Australia in particular, and probably some Russian and Canadian projects. Picking the winners to benefit from Chinese support - good luck with that! I'll still with gold, copper, as its easier to sell.

Source: New Chinese Nuclear Technology and Waste Fuel Reprocessing.

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Andrew Sheldon www.sheldonthinks.com

Gold still has some downside before resuming uptrend

I would not be surprised to see the gold price fall back to $1255-1300/oz level in the short term, however that ought to be the basis for a very solid run. I don't even expect gold stocks to flinch if that happens, as we approach the reporting season. There are several issues which might hold gold though.

We can expect a post-Xmas rally in gold, though in the short term, there is the prospect of a greater correction. Don't for a moment expect that long term uptrend to break.

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Andrew Sheldon www.sheldonthinks.com