Stock Preacher

Gold futures dipped on Wednesday as weaker equities prompted funds to consolidate recent profits, but the market drew support from a renewed appetite for risk among investors. Platinum and palladium, boosted this week by strong July car sales, rose on supply worries because of a possible strike at the power utility in top platinum producer South Africa. Renewed interest from investment funds buoyed commodities and equities alike, as investors focused on economic recovery rather than deflation which had decreased inflation-hedge buying in Gold earlier this year. US December gold futures settled down US$3.40 at US$966.30 oz on the COMEX division of the New York Mercantile Exchange. Spot Gold dipped to US$966.20 an ounce at 3:30 p.m. EDT from US$966.75 oz late in New York on Tuesday.

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Credit Suisse Group AG switched its preference for government bonds in favor of stocks and raised its estimate for the Standard & Poor’s 500 Index by 14% to 1,050, citing improving economic indicators and earnings. Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” reversing a decision made in June, according to London-based global strategist Andrew Garthwaite. The VIX and investment- grade corporate bond spreads have returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told clients in a note today. Valuations on equities are “not expensive” and consensus estimates for earnings in the US are now being increased, something which precedes a rising stock market in the subsequent two to three months, he wrote. “Bonds no longer look attractive,” Garthwaite wrote. We expect “a positive macro surprise in the second half of the year. We believe that we are halfway through the first ‘V’ of an upward sloping W-shaped recovery, with a likely peak in the early Q-4.” Goldman Sachs Group Inc.’s David Kostin yesterday increased his estimate for the S&P 500 index, saying the benchmark for US equities will advance 15% from its June 30 level to 1,060 on Dec. 31, an increase from his prior projection of 940.

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Since the New Bull began its charge on March 9, clean energy stocks have put together a mighty rally of their own, as they outpaced the US equities market as a whole. Savvy market observers believe that it reflects the benefits of being on the right side of political trends, thanks to initiatives from China, the United States and other countries. Three major indexes tracking green energy companies have risen sharply of late. The US -only Wilderhill Clean Energy Index, comprising 51 companies, is up 72% since the March 9 low. Its global counterpart, the Wilderhill New Energy Global Index, which tracks 88 companies in 21 countries, is up 66% in the same period. The CleanTech Index, which tracks a broader group, including industries like sustainable agriculture, is up 57%. By comparison, the S&P 500 is up 35% since hitting a 12-year low on March 9. The Green stocks are recovery mode have being hammered on demand concerns brought on by the drop in the price of Crude Oil and the credit freeze, the Wilderhill indexes plunged 70%, and the Cleantech Index 50 %, in 2008. The indexes are still off 2007 peaks.

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Global Gold and Silver trading posted record activity since the start of the credit crisis, according to the Bullion Markets 2009 report published in London last week by the International Financial Services London (IFSL). Gold turnover increased 58% in 2008 to a record US$ 20.2 T. Silver trading increased 39% during the year to a record US$2.6T. The traditional “safe-haven” appeal of the precious metals has attracted many investors to this asset and the growth in turnover was partly due to an increase in prices of precious metals during the year with Gold posting an all time high in March of US$1,011 oz. According to the report, the OTC market accounted for nearly 75% of Gold trading and 56% of silver trading. Most of this activity was transacted through the LBMA (London Bullion Market Association).

Daily reported net trading in Gold on the LBMA averaged US$20B in the first 11 months of 2008, up 45%t on the same period of 2007. Daily trading in silver on the LBMA increased 32% to US$2B. Futures and options trading of Gold on exchanges increased more than 80% in 2008 to a record US$5.1T, according to the report. Trading of silver increased 60% to a record US$1.2T. Exchange traded Gold and silver funds have been the strongest source of growth in demand since their introduction in 2003. Comex in New York, MCX in India and Tocom in Tokyo account for most of the exchange traded activity.

Investors who know their history are moving into Gold. They know that in the last few years of the 1970s, the Gold mining sector featured quadruple digit share price gains as Gold shot North. With the same economic conditions prevailing now, it’s not unlikely to see the same happening once again.

Bottom line: US$800 oz Gold may turn into $1,300 oz Gold in the foreseeable future. Scarce, precious metals like Gold have become sought after investments following the huge sell off in equities. Many Gold Bugs and value analysts are predicting a major Bull Charge North in Gold, and that is has already begun.

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