Monday, March 3, 2008

Gold, oil rocket to record highs

Gold, oil rocket to record highs

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ROMA LUCIW
Monday, March 03, 2008

Gold prices scaled unprecedented heights Monday, hitting record territory alongside crude oil as investors looked for a safe place to park their money while the U.S. economy and greenback struggle.

Gold futures jumped to $992 (U.S.) an ounce on the Comex division of the New York Mercantile Exchange, pushing to within a whisper of the milestone $1,000 level as the U.S. dollar fell to its lowest ever against the euro. Bullion eventually closed Monday's session at $984.20, up $9.20. Gold prices rallied nearly 32 per cent in 2007 and have shot up more than 15 per cent this year.


Not to be outdone, crude oil futures surged to an unprecedented $103.95 a barrel in New York on Monday. The gains sent the benchmark price of oil above an inflation-adjusted historical record reached 28 years ago. Oil peaked at $39.50 a barrel in April, 1980, which translates into $103.76 a barrel in today's money.


Matthew Turner, a precious metals analyst at Virtual Metals Consulting Ltd. in London, said a struggling greenback and the raft of weak U.S. economic data are supporting gold's gains.

“As long as the U.S. dollar is falling and the economic news from the U.S. stays this bad, gold could go much higher,” he said in an interview.

Bullion started to regain its lustre last year, as investors flocked to it for its safe-haven qualities, Mr. Turner said. The ongoing financial crisis has also boosted the yellow metal's appeal

“The nature of the financial crisis has been a collapse of trust in the banking sector, and if you can't trust financial intermediaries, then metal dug out of the ground make sense again,” he said. “This has been the perfect crisis for gold.”

A report on manufacturing released Monday suggested the U.S. economy is already in a recession, while another showed that construction spending plummeted. The negative news, which pushed the U.S. greenback to a record low against the euro on Monday, is expected to drive commodity market trading until at least March 18, when the U.S. Federal Reserve is to release its next interest rate decision.

“Right now it is all doom and gloom, and that is what metals thrive on,” said Jon Nadler, a senior analyst at Kitco Bullion Dealers in Montreal.

The confluence of a weaker U.S. dollar, higher crude oil prices, and further subprime woes are “playing right into the hands of a speculative metals trader,” Mr. Nadler said. “This is an anxiety premium that is being built into this by the convergence of all these news flows.

Hedge funds, he said, are “throwing tons and tons of money at these markets, mostly for a lack of better alternatives. So that is snowballing and to some degree actually distorting the fundamentals.”

Mr. Nadler said gold could rise to $1,010 and $1,080, but warned that the “risk of a correction has risen exponentially.” Some traders believe that bullion's runup will ease after the Fed's next meeting.

Bullion's run toward $1,000 is unfolding as the annual Prospectors and Developers Association of Canada Convention (PDAC) takes place in Toronto. Although Canadian gold stocks have lagged the jump in gold prices, the S&P/TSX gold subindex was leading the gains on Monday.

Still, shares of Canadian junior miners have remained on ice when compared with gold's massive run, Mr. Nadler said. “PDAC euphoria notwithstanding, the problem is that they just have not done enough. No matter how good the gold story is, sluggish global stock markets, fluctuating currency markets and management risk are all still factors to contend with.”

Gordon Stothart, the chief operating officer of Iamgold Corp., said higher gold prices will add “some very significant value to our bottom line” in the form of higher revenue.

Rising bullion grants the Toronto-based company the “financial wherewithal” to develop projects, he said. “It provides some additional impetus to push our projects as quickly as possible and try to bring them online so we can take advantage of the high gold price.”

However, the price spike can also translate into higher costs and increasing unease in the investment world, Mr. Stothart said.

He expects gold prices to remain elevated: “Gold should hang in at a very high price ... a lot of people are moving away from the U.S. dollar currency and locking into something solid to help replace it.”

Jeff Nichols of American Precious Metals Advisors said that because gold's runup is being driven by investment buying, prices are bound to keep on climbing.

“Don't be surprised to see gold trade up to $1,100 or even $1,200 before year-end 2008,” he said. “And – with the right confluence of economic and geopolitical developments – we could see gold spike to $1500 or even $2000 in the next few years.”

With a file from reporter Virginia Galt.

© Copyright The Globe and Mail

Stocks to buy in a recession: Nuthin' says Shilling

Stocks to buy in a recession: Nuthin'

Monday, March 03, 2008

When economists were still forecasting sunny skies ahead last year, Gary Shilling was one of the few who stuck out his neck and called for a U.S. recession by the fourth quarter of 2007 – a call that is beginning to look spot-on.

Now, far from updating his initial call with told-you-sos, Mr. Shilling – president of A. Gary Shilling & Co. Inc. – is taking things to the next step. Forget about a shallow recession; this one is going to be deep. And forget about making money on specific sectors of the stock market; the downturn will be broad.

“Yes, it’s puzzling that equity price declines so far have been small in the face of the rapidly expanding cancer in financial markets, which has metastasized in the consumer spending body,” he said in his monthly letter to clients.

His theory, though, is that investors are still pinning their hopes on a massive rescue effort from the U.S. Federal Reserve – which he figures will not help this time around because of the severity of the U.S. housing market downturn.

He looked at various industry groups that make up the S&P 500 and charted their results for the seven previous bear markets that were tied to U.S. recessions. Making money on the stock market certainly seemed like a fruitless task, even if you concentrated on defensives.

The household products group did fine during the 2000-02 bear market, rising 33 per cent. But it fell 35 per cent in the 1972-74 bear market. The life insurance group rose 27 per cent during the 1980-82 bear market, but fell 45 per cent in the 1968-70 bear market. Even major pharmaceuticals have an uneven record as defensives.

“In this environment, it’s best to prepare for further big stock declines.” Mr. Shilling said. “[W]e favour buying Treasury bonds and buying the dollar sometime soon, but the rest are sell recommendations – selling housing and related stocks, selling consumer discretionary stocks, selling commodities, selling commercial real estate, etc.”



© Copyright The Globe and Mail

And This:
Lord Black behind bars

PAUL WALDIE

Monday, March 03, 2008

Coleman, Fla. — Conrad Black drove into the Coleman Correction Complex in Coleman, Fla., with his wife Barbara Amiel Black just after noon EST on Monday. He arrived about 2 hours ahead of the court-imposed deadline for him to report to the prison.

He will now begin serving his 6.5 year sentence for fraud and obstruction of justice.

The Blacks arrived in a grey Cadillac Escalade and drove past a throng of media. When the SUV left 30 minutes later, Ms. Amiel Black could be seen in the back seat through the vehicle's tinted windows.

Lord Black will now be searched, fingerprinted and given a brief orientation. He will share a room in a dormitory like complex with about 100 other inmates, mostly men convicted of non-violent drug offences.

He will go through a brief orientation and receive four sets of clothing.

Eventually, he will also be assigned a job, at a starting rate of 12 cents an hour.

Coleman is one of the largest prison complexes in the U.S. with more than 7,000 inmates. It has low, medium and maximum security wings. There are about 2,000 inmates in the low-security unit.

Lord Black had asked to serve his time in a prison camp in Miami but the request was denied. Lord Black is British and in general foreigners are not allowed to serve time in prison camps.

The prison in Coleman is about a 4 hour drive from Lord Black's ocean front mansion in Palm Beach, Fla.

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