Is Gold Really in a Bubble?

But hang on. The average property price has increased three or four time in the past ten years. Yet for ‘fundamental reasons,’ he doesn’t believe that there’s a property bubble.

In his report, Robertson suggests that most gold buyers purchase the ‘pretty rock’ as a hedge against inflation. Yet, he doesn’t believe that there are signs of inflation right now.

But that’s the interesting thing about inflation. You don’t need ’signs’ of inflation to feel the effects of inflation. All you know is your five dollars you used today is buying you less than what your five dollars bought you last week. And if your purchasing power is less than it was yesterday, that’s inflation at work.

Putting gold as an asset and a hedge against inflation aside for the moment, for the past few months other factors have been driving the price of gold. One of those factors is fear.

In recent months you could only use the words ‘financial turmoil’ to describe the current global financial system. For years, economies have been running on massive debt levels made possible by government-controlled fiat currencies. If the past few months are anything to go by, paper money is losing the confidence of the investing public.

Countries like Greece, Spain, Italy and Portugal are directly in the spotlight. They’ve been forced to confront unsustainable fiscal and monetary policies and deal with large sovereign debt levels. At least they are dealing with it-although no one is sure if ‘austerity’ will work or if default is just a matter of time.

But what about countries who haven’t even admitted they have a debt problem? There is some serious fiscal denial in certain parts of the world. America is serious financial trouble. But the U.S. Congress hasn’t even passed a budget for this fiscal year. The government keeps on spending money it doesn’t have by borrowing money it may never be able to repay.

Traders are onto this. While the U.S. has not yet been put on watch by the credit ratings agencies and can’t, in theory, directly default when the Fed has the power to print money, investors are no longer treating US dollars as a safe haven, reserve currency asset. In fact, people are dumping their greenbacks and replacing them with gold bullion. It’s well known that China and India have been increasing their gold bullion stores, rather than hold risky US dollars.

All of these factors combined had driven more investors to gold. Which is exactly the reason Robertson thinks the metal is in a bubble. He believes that the more people that buy something simply because it always goes up - hasn’t this argument been used for property? - is the very stuff of bubbles.

But there’s more to gold than that. Aside from it being pretty, it has a real use.

It’s safe. It’s real and you can touch it. And in the worst ‘end of the world’ situation, you can take a small shaving from your gold bar down to Coles and buy your groceries if paper money falls over. People have been using gold as money for thousands of years. They call small units of gold used for every day transactions-get this-coins! Yep, a real revolution!

OK, that might be a little dramatic. But no more dramatic than Robertson saying ‘…anticipating extraordinary financial and societal turmoil down the track, gold fits into a portfolio rather nicely alongside automatic rifles, cases of ammo and beans and hilltop bunkers.’

While we’re not suggesting you start stock piling guns and beans next to you bullion stash, the financial system collapsing isn’t such a farfetched option. In fact, I can’t think of any time in history where a fiat currency system hasn’t crashed.

The Resource Super Profits tax

Like many contemporary political issues, everyone has a very strong opinion regarding the proposed Resource Profits Super Tax (RPST). But as it was with the proposed emissions trading scheme (ETS), very few of us have a comprehensive understanding of how exactly it works. Fewer still are able to appraise the situation from a perspective that does not relate specifically to their own self interest. But such is the nature of these things.

Rather than get lost in the detail of the proposed tax, let us instead evaluate the situation from a broader perspective. The first thing to appreciate is that the current tax regime for mining companies is in dire need of reform, something both sides of the debate acknowledge. A tax based on the principle of economic rent is one that most experts agree is not only fairer, but also encourages investment (in essence, economic rent is the level of profit in excess of the bare minimum required to make a given economic venture worthwhile). Here too both sides are for the most part on the same page.

Where opinions start to differ is with the detail. Essentially, the miners argue that the rate of tax that is levied is too high, and the level it kicks in is too low. The Government maintains that this is very reasonable and that the miners have just gotten used to paying very low taxes for too long. They also argue that the proposed system will provide significant benefit to those projects that turn out to be unprofitable, or not highly profitable.

As is often the case, both sides have some valid points, but both are guilty of exaggeration and spin. I tend to think that a rent based tax is a great idea, and that although the details may need some adjustment, it will be of great benefit to the mining sector over the long term. Especially so when the resource boom eventually and inevitably starts to wind down.

The point I want to discuss though is the broader issue with Sovereign debt. Australia is lucky enough to have escaped the worst of the GFC, and indeed we are the envy of the western world. But the fact remains that, like so many countries, we need to ensure that our debt levels remain reasonable and under control. If we don’t we will eventually end up like Greece, and of course no one wants that.

However, there are essentially only two ways to reduce budget deficits and Government debt: cut spending or raise taxes (or both). Neither is politically palatable, as we have seen with the reaction to the European austerity measures. But be that as it may, it is unavoidable.

The Government of course knows this, and knows it needs to act sooner rather than later. The Henry review seemingly provided an answer on a silver platter: tax the super profitable miners and avoid the angst of the general population. Well, obviously it hasn’t played out like that, but only because the Government has been very bad at explaining the issue, and the facts have been tainted by very powerful and well resourced interest groups.

People opposed to a higher tax regime for the miners must understand that if it doesn’t go ahead, the Government will need to raise money elsewhere, and that could well be in the form of higher personal tax. No one will be happy with that and it will be political suicide. Otherwise the cuts to Government spending will need to be far more aggressive. Again though, voters probably won’t appreciate significant cuts to hospitals, education, welfare, infrastructure and the like.

So let’s all take a step back and understand that although the RPST is far from perfect in its current form, it has the potential to reform the mining tax regime and raise significant funds in one stroke. The miners will always and should always do what they can to maximize returns for shareholders, so we can expect them to fight tooth and nail against this, but the fact is that they can afford to pay more tax and still remain very profitable. Even in its current form the RSPT will not decimate the Australian mining industry, despite claims to the contrary.

Let’s not forget too that what they are profiting from are the natural resources that are collectively owned by every Australian, and we need to extract a decent return for ourselves. One day this boom will be all over and we will ask ourselves who reaped the lion’s share of the benefit. Most likely it will be corporate interests, and indeed they are entitled to make a decent return from their hard work. But citizens should understand that the current regime means that the country itself is not getting anywhere near its fair share.

Somewhere between the two ends of the spectrum of this debate the truth lies. Rather than get hysterical over the extremes, let’s debate the issue in a calm and objective way. This issue is a big one and requires strenuous debate, but let us first establish the facts before we all go off half cocked.

Safe Haven Shines Light Brightly

Gold is regarded by many as a safe haven when the going in the world gets tough.  It can be a brightly shining lighthouse.  Let’s look at the chart:

click to enlarge

Gold is one of the few charts that show a bullish five wave pattern at the moment – with maybe 7% move up to the second wave five.

And if we look at the weekly we see the prospect of an even bigger move higher:

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This suggests the prospect of a rise of over 20% by end 2010!  Nice move if you can get it!

As much as I am a huge fan of Elliott I know not to get too attached to an outcome – and especially a second wave five!

But with the prospect of even a 10% move does that mean you should buy gold stocks when everything else is falling?  Not necessarily.  Just look at the NCM chart:

click to enlarge

NCM is like most equities – there is every chance it is also heading south!

When a market is falling it can be a tough game trying to pick contrarian sectors and I reckon one is better off getting behind the move down and go short!

Sand exports to Singapore harm Cambodia: watchdog

Cambodia is engaged in destructive sand exports to fuel Singapore’s rapid expansion despite a supposed government ban on the practice, an environmental watchdog said Tuesday.

London-based Global Witness said Cambodia was making a “mockery of the government’s supposed May 2009 ban on sand-dredging”, risking devastation to its coasts, endangered species, fish stocks and local livelihoods.

“There is no evidence that basic environmental safeguards have been applied, with boats reportedly turning up and dredging sand, often in protected areas, with no local consultation,” said its new report, entitled “Shifting Sands”.

The group, which has made many allegations of Cambodian cronyism in recent years, said Mong Reththy and Ly Yong Phat — senators known to have close ties to premier Hun Sen — have been covertly awarded licences to dredge sand.

“This situation highlights the continued failure of Cambodia’s international donors to use their leverage to hold the small elite surrounding the prime minister to account,” said George Boden, campaigner at Global Witness.

The report said investigators tracked sand-filled boats from Cambodia to Singapore, estimating concessions from southwestern Koh Kong province alone netted 20 million dollars per month for some 796,000 tonnes of sand.

Global Witness added that figures from other concessions along Cambodia’s coast were not known, and there was no way to track whether revenues from sand exports reached the national treasury.

“In addition, Global Witness has seen Cambodian sand dredging and export licences which bear the stamp and signature of a representative of the Singapore Embassy in Cambodia,” the report said.

Cambodian government officials contacted by AFP refused to comment on the allegations, while others told local media that the ban on sand dredging for export was still in place but some was permitted to serve local needs.

Mong Reththy denied exporting sand to Singapore and said he had only conducted dredging to allow passage of ships to his private sea port.

“I have never sold sand (to Singapore). They would not even buy the sand because it is not good quality,” Mong Reththy told AFP.

Singapore’s Ministry of National Development also rejected the Global Witness allegations, saying the government was committed to protection of the environment and did “not condone the illegal export or smuggling of sand.”

“The report suggests that the Singapore government seeks to import sand without due regard to the law or environmental impact of the source country, in this case Cambodia. This is not true,” the ministry said in a statement.

Singapore has expanded its surface area by 22 percent since the 1960s, said the report, requiring vast quantities of imported sand from neighbours in southeast Asia.

Indonesia, Malaysia and Vietnam have halted sand exports to the city-state over concerns the practice depleted fish stocks and caused erosion.

The Cambodian government has banned past reports by Global Witness, which also accused donors of ignoring graft among elites who have allegedly been involved in illegal logging as well as shady oil and mining deals.

Today I want to take a brief - very brief - look at China. You know China, that’s the economy to our north that saved Australia from economic death last year.

As you may have read in these pages before, don’t believe the hype about Australia’s resilient economy and sound banking system being the reasons why Australia scraped through without much damage.

It was all down to one reason - the Chinese.

But while the Chinese may have helped out last year, the news in recent days points to the perils of relying on the irrational whims of an overseas government to prop up your domestic economy.

News reports such as “China pushes to wean banks off lending” should be enough to send a shiver down the spine of any Australian corporate bigwig.

Because make no mistake, the Australian economy is tied at the waist, the hips and the legs to the Chinese economy. Should the Chinese authorities decide enough is enough it will be curtains not just for companies in the resources industry, but every sector of the Australian economy.

Even sectors that would appear to have little connection to mining will be affected. And so will individuals.

How come? Well, simply because the Australian economy has so much riding on the resources industry in terms of exports.

If the Chinese stop buying up all of Australia’s natural resources the consequences will be dire.

Simply put, while the Australian dollar has become stronger partly due to higher interest rates than other economies, it is still the commodity currency status of the Australian Dollar that has driven it higher.

That’s because all - or most - of the money used to buy up those resources is eventually converted from US dollars or Japanese Yen or Chinese Yuan into Australian dollars.

Naturally, when we import goods there’s also a bunch of Australian dollars that are converted into other currencies as well which helps to even things out.

But imagine if suddenly the export of resources hit the skids. We saw how this could look when the Australian dollar sank from USD$0.98 to around USD$0.60 last year.

That was just a short term hit, and was really influenced more by a ‘flight to safety’ rather than mindless dumping of the Aussie dollar.

A seizing up of the Chinese economy would be entirely different. That wouldn’t be a short term blip at all. And for Australia it would mean a similarly big fall in the value of the Aussie dollar.

And unlike during the mid-2000s when the dollar was priced around USD$0.50, just as the resources boom was taking off and the China story was starting to make front page headlines, there would be no ‘get out of jail free’ card for the Australian economy this time.

Look, we’ve seen plenty of headlines in the past about the Chinese authorities threatening to put the brakes on economic growth. In the most part the economy has continued to surge on and the Australian economy has benefited from it.

But like all bubbles and all winning streaks, this one will end too. The worrying aspect to all this is that there doesn’t appear to be a Plan B.

What will the Australian economy export if no-one wants our resources? Quite frankly, the options don’t look very promising.

Anglo-Australian mining giant Rio Tinto said Thursday it had secured its first-ever iron ore sale to India, a “ground-breaking” development it described as significant for its future.

Iron ore chief Sam Walsh said Rio had sold a 160,000 metric-ton shipment to Indian steelmaker Essar for delivery later this month.

“To me, this is a ground-breaking sale and I think it is a good signal for us and Western Australia– it is strategic for us,” Walsh told Dow Jones Newswires.

“This is only one shipment at this stage but this is very significant in terms of forging a relationship with Essar, and potentially opening doors.” “We have long believed that India is a long-term market of great potential, and this development should be seen in that context,” he added.

Walsh said the sale, which was made at international spot rates, was also significant for its plans to launch iron ore operations in Orissa state, where it has a 51 percent stake in a joint venture with state-owned Orissa Mining Corp.

“It is also potentially significant given our iron ore project in Orissa, which we expect will also be a source to supply the growing Indian market,” Walsh said.

He did not confirm reports that the shipment was part of a request from Essar for up to three million tons of iron ore.

The Indian steelmaker downplayed the move as a short-term arrangement to meet demand as it expanded production capacity.

“In order to … expeditiously ramp up the capacity, iron ore from international sources is being considered,” an Essar spokesman told AFP.

“This is in addition to iron ore supplies under contract with domestic suppliers.”

Essar’s production was more than halved when Maoist rebels blew up a mining pipeline supplying its pellet-making plant in the southern city of Vizag in May, Dow Jones said, citing mining officials.

ANZ senior commodities strategist Mark Pervan said more competitive prices and greater ore quality were likely to have led India, the world’s second-largest consumer of iron ore, to look to Australian producers.

But he was dubious about the longer-term implications of the sale, saying India was never going to compete with net importers such as China, Japan and Korea.

“India is a very big iron ore producer of its own and traditionally an iron ore exporter … and by default it should be supporting all of its own needs,” Pervan told AFP.

“It’s significant in that India is going to foster a very large steel industry and therefore demand a lot of iron ore. But it’s probably almost always going to be sourced from its domestic supply.”

The world’s second-largest producer of iron ore, Rio’s chief export market is fast-industrialising China, but emerging India is also expected to underpin a boom in demand for resources.

Australian officials have forecast a “decades-long” return to stellar growth fuelled by demand for commodities from developing nations.

The world’s largest miner BHP Billiton, which agreed this month to combine Western Australia iron ore operations with Rio, has said it expects global steel demand to double in 15 years.

India would partly underpin a 250 percent increase in seaborne iron ore demand by 2025, and was also expected to intensely consume energy and coking coal, BHP said.

The two important columns are the “Total assistance” and “Average cost of living impact.”

The “Total assistance” column details the increased benefits paid by the government to individuals to help cope with the increased costs of an ETS. In reality what this also equates to is the extra cost to the taxpayer - you.

And the “Average cost of living impact” column details the increased cost to the consumer.

Whichever way you look at it, it’s theft from the individual on a grand scale. Because remember, it’s not businesses that pay for this, it’s always the individual. You’ll pay for this through increased taxes plus increased prices.

While I’m on the subject, a quick update for you on our Climate Change education…

Based on what we’ve read so far on Climate Change, all roads lead back to the Intergovernmental Panel on Climate Change (IPCC). All other research is based on the findings of the IPCC. Therefore, if the IPCC have got it wrong, then all the other research its findings are based on is completely useless.

Which rather puts a hole in the argument about there being millions of scientists who have researched Climate Change and found it to be a problem.

Because they haven’t, they’ve merely created models based on inputs supplied by the IPCC, and then added in their own scenarios to spit out the results.

So, the IPCC reports are the next port of call on our Climate Change/Stable Climate education.

But you only have to look at the horse trading over the ETS between the crooks in government and the crooks aiding and abetting them in the Opposition.

We simply ask the following question: If Climate Change is so important that something must be done about it, why is the government allowing the biggest emitters of CO2 and pollutants to get off virtually scot free?

We can answer that question ourselves. It’s because the Climate Change argument is all about a massive tax grab and power grab. It’s got nothing to do with ’saving’ the environment.

Unfortunately, the ‘Stable Climate’ deniers can’t see this because they’ve taken a massive dose of ‘Climate Change Rohypnol.’ They’re drugged up to the eyeballs on Climate Change spin.

Unfortunately for them, after the drug wears off they’re likely to wake up in ten years to find they and their wallets have been severely violated. Trouble is, it won’t just be them that will have felt the pain, everyone will have.

But, as I say, that’s on the table for tomorrow. Today we’re looking at gold priced in Australian dollars. Although it’s not just gold, but silver that’s making some headway too.

One of the frequent comments I get from readers is that the price of gold in Australian dollars has actually fallen in the last few months even though the US dollar price has risen.

You can see that on the chart below:

The Aussie dollar gold price reached a peak of around $1,550 in February this year before sliding to below $1,150 in the space of six months.

You could reasonably argue that in Australian dollar terms the price of gold crashed this year.

The simple reason for the ‘crash’ is due to the ever decreasing value of the US dollar. As you can see on the chart below the Australian dollar has climbed from 63 cents in March to 93 cents today, a near 50% increase:

It has been this ‘crash’ in the price of US dollars that has caused the Aussie dollar price of gold to fall.

The point is whether now is a good time to buy gold? I mean, as Money Morning reader Peter wrote to us yesterday:

“How do we know that “GOLD” being a safe asset is not in a bubble?”

That’s a pretty good question. And of course we can’t be 100% certain that it isn’t in a bubble. Although I’m 99.99% (gold bugs will like that reference!) certain that it isn’t.

But let me put it this way, if someone asked me which would be the best asset class to buy and hold over the next 30 years, my answer would be precious metals.

Rather, share investors should be active with their portfolios taking advantage of high prices to sell and cheap prices to buy. It doesn’t mean you have to be a day trader, it just means taking more responsibility over your investments rather than letting the fund managers cream you.

And as for property, well, it goes without saying that property is in a monumental bubble caused by rampant government and central bank manipulation - invest in property at your peril!

As a long term buy, hold and ‘forget-about’ investment, gold - and silver - wins hands down.

That’s compared to paper or electronic money which isn’t rare, it is ‘perishable’ in that it can be erased by the click of a button, but it’s just as easy to produce more of it, also by the click of a button.

The one thing paper money has in common with gold is that it’s relatively easy to move it around. Although at today’s prices an ounce of gold would take up less space in your wallet than twelve $100 notes.

So arguably, gold is easier to move than paper money.

But that doesn’t really help to explain whether gold can keep going up or not.

If we look at a longer term view of the gold price, you can see that gold has had plenty of corrections over the last thirty-odd years:

In fact, following the last peak nearly thirty years ago, gold went into a long term bear market. That was until Alan Greenspan started the disastrous policy of keeping interest rates artificially low at 1% during the early 2000’s.

Since then - just as then UK chancellor of the exchequer Gordon Brown decided to sell half the UKs gold stock - gold has barely looked back.

In US dollar terms it was trading below USD$300 an ounce in 2000 (Gordon Brown’s selling price!), compared to USD$1,164 today.

In percentage terms that’s an increase of 288%.

If we were talking about the housing market or the stock market we’d quite rightly say that following such a gain it was a bubble waiting to be popped.

In that case how is it possible for gold to buck that?

Look, let me state for the record that we don’t consider our self to be a diehard gold bug. But even so, do you know what, you don’t have to be a gold bug to see that the case for gold is as compelling today at USD$1,164 an ounce as it was at USD$300 an ounce.

All you need to do is accept that gold has certain benefits when compared to paper or electronic money. Those are the benefits I highlighted above.

If you accept those benefits are valid then all you need to do is look at the policy actions of certain central banks to see how they are eroding and even destroying any remaining value there is in paper money.

Precious Investment

Precious metals have been strongly demanded during the last few months: gold prices jumped above $1,000, silver and palladium prices reached recently a new 12-month high.

What about platinum? Have a look at the chart: the medium-term bullish trend in place since last November may above soon. A correction is expected.

Indeed, 11 months of up-trend have driven platinum price to a technical resistance that is likely to prevent a further rise. The historical high price (point A on the chart) posted in early March 2008 at $2,308 was followed by several months of correction and consolidation. The real plunge started at mid-July last year. In just 3 months, platinum prices fell from $2,059 to $752 (point B, down 63%).

Click to enlarge

A rebound was initiated in November. Some momentum built up and eventually generated a bullish trend. Two weeks ago, the price action failed to break above $1,350. This level corresponds to the 38.2% Fibonacci retracement of the decline occurred between extreme points A and B. It also corresponds to a previous intermediary support zone, where the price action had bounced back in August 2008 (point C). Previous supports often become new resistances. That’s why some profit-taking has been triggered at $1,350: it was a technical opportunity to reduce risk and lock in decent gains.

From $752 to $1,350, it means that platinum prices have already bounced by 79% since last November. According to several indicators (Relative Strength Index but also Chande Momentum Osicllator), an overbought configuration was obvious at mid-September. The upside is very limited and the risk is clearly downward. Yesterday the price closed at $1,300, but there is more to come before bull players will take the opportunity to re-enter long trades. Technically speaking, there is probably 15% more to correct before the price action reaches a support line.

This target at $1,100 corresponds to a previous support area where the price action bounced twice (points D and E) in May and July this year.

I would like to continue this month with my new series on Iron Condor (IC) trading and share some of the insights I gained in trading Iron Condors on the Russell 2000 Index (RUT). I traded the RUT for most of 2008 and am certainly back in the saddle in 2009.

At the time of writing we are experiencing a sideways to slightly bullish market – perfect for this strategy! There is a lot more to take from this article than just ways to trade the IC because really it is just 2 short spreads (or credit spreads), sold far OTM with the view that they will erode in value and be able to be bought back cheaper than they were sold.

Given that credit spreads are part of other strategies we know (condors, butterflies or just single credit spreads), the trader should be able to incorporate some ideas from this article into other areas of their trading. Let’s revisit the period from December 2007 to September 2008, when the RUT was trading in a range.

click to enlarge

Let’s assume we are legging into the trade and are therefore placing our spread orders separately.

When we sell a spread, our broker will give us a quote (a bid/ask) on the actual spread. Single options have their own bid/ask spread, but strategies (spreads, butterflies, calendars etc) also have their own bid/ask spread. For example if we wanted to sell the 810/820 call spread on the RUT, and we pulled up this spread on the order screen, there would be a bid/ask quote for the spread. For example the bid may be 50 cents and the ask 60 cents and would look like 0.5 / 0.6. This means at the worst, we could sell this spread for 50 cents and at best we could get 60 cents.

We know that we are never going to get the best price otherwise there would be nothing in it for the market maker. But there is a way we could still get the 60 cents - or even more, which I will discuss later. But commonly on the RUT I am filled at the midpoint, which means the price right down the middle of the bid/ask. In this case that would be 55 cents. On some broker platforms when you bring up a quote for the spread, they default in quoting the mid-price for you. If I need to get out of a trade quickly, or I want to sell a spread quickly, I will take 5 cents off the price to increase my chances of getting filled. If the market is moving fast or volatility is very high (making bid/ask spreads wider), I may have to take 10 cents off the price.

Either way, I always try to get more for selling my spreads than just the mid-price. It doesn’t take much market movement for the option prices to move around and if the RUT moves enough intra-day then my spread price will move as well. So commonly in the example above, I will actually place a limit order to sell the spread for 60 cents. I won’t get filled straight away but if the market moves a little in the direction of the spread then that 60 cents may now become the mid-price of the spread, meaning I have a fair chance of being filled.

The catch here is that if the market moves in the other direction for the entire day, then I will never get filled and will probably wish I had taken the mid-price originally. Regardless of this, I think the strategy is worthwhile. 5 cents may not seem much, but that’s $5, and if you had 5 contracts, and then the same for the put side that’s $50 in total. Doing this at the exit of the spreads would mean another $50 in your pocket, or in this case, $100 so far. Now if you sold and bought back your spreads twice in the month, potentially that’s an additional $200 that you’re better off. Now we all know it’s not as black and white as that, but it’s amazing to see how fast those 5 cent’s all add up.

I hope that has given a new way to think about placing orders and getting filled. Happy trading, but please remember trading this strategy carries a great deal of risk, relative to the reward you can make. Please don’t go out and trade these if you don’t understand the strategy, risks, rewards, breakevens and both winning and losing adjustments like the back of your hand.

Let’s have a look today at a metal that recently cleared an important level and that should continue riding its bullish trend. I’m talking about lead. From the lows posted in December last year, lead price has more than doubled. It jumped from $880 (per tonne, point A on the chart) to a last closing price of $1,774.

The retracement on the upside from the lows of last December has been made quickly and without significant consolidation phases. The bullish trend in place is characterized by regular higher lows and higher highs. Both on daily and weekly basis, the current uptrend looks strong and durable.

Actually the price action crossed above two important levels in late May and early June. Those levels were technical resistances. The first level cleared was a previous low (point B, posted in early July 2008) that became then a new high twice (points C and D). It corresponds to a tight zone between $1,525 and $1,550.

Click to enlarge

The second breakout occurred as the price action rose above the descending line that goes through points 1 and 2, two highs posted in October 2007 and March 2008. It could have been a major prevention of a further rally, but obviously the bulls hold firmly. As those two resistances did not trigger any correction, the price action jumped quickly in June until $1,796.50 (point E).

The pull-back move that followed tested the two resistance levels previously cleared and the price action found some support there. It’s a confirmation that the near future is likely to be on the upside. The indicators remain well oriented and also suggest a continuation of the bullish trend. The medium-term momentum indicator (180 days) has crossed above its 100 line and the MACD is on a positive configuration. The RSI does not show any overbought alert.

In this scenario, the objective now may be $1,950, which correspond to the 38.2% retracement ratio of the decline occurred between points 1 and A (extreme points of the bearish trend). Of course, on the other side, the support is the level of $1,550 points.

Wilmar eyes $4 bln China unit spinoff in HK -report

HONG KONG, July 20 - Singapore-based cooking oils producer Wilmar International <WLIL.SI> aims to raise US$3 billion to US$4 billion through an initial public offering by its China subsidiary in Hong Kong in the first half of next year, the South China Morning Post reported on Monday, citing an unidentified source.

Wilmar, one of the world largest agribusinesses with operations in Indonesia, Malaysia, China, India and Europe, has hired Bank of China International, Goldman Sachs <GS.N> and Morgan Stanley <MS.N> to advise on the deal.

The IPO would value the company’s China subsidiary at up to US$14 billion, the report said. It gave no further listing details.

Chinese iron ore miner China Vanadium has also revived its plan to raise US$200 million in an IPO by the end of this year or early next year, the newspaper said. Citigroup is handling the deal.

A number of listing hopefuls have revived their listing plans in Hong Kong following a stock market rally and on improving risk appetite.

Gold Prices Move Modestly Lower To Test Two-Month Low

Gold finished lower again on Friday, following the lead of crude oil, and resumed its trend toward $900 an ounce. A weaker dollar diminished the precious metal’s hedge appeal.

August gold fell to $912.50, down $3.70 for the session. Prices hit as low as $906.60 in early trading.

Gold fell about $18.50 an ounce for the week as the dollar generally drifted higher against its European rivals. The metal hit a multi-month low of $904.80 on Wednesday.

The dollar moved back above 1.400 against the euro and also saw mild strength against the British pound as lower global equities pushed traders toward the lower-risk currencies. Most of the time, gold moves opposite the dollar because of the precious metal’s hedge appeal.

Crude oil surrendered another 52 cents to finish at $59.89 per barrel, its lowest close since May 18. Prices earlier hit as low as $58.72.

In economic news, a Labor Department report showed that import prices jumped 3.2 percent in June following a 1.4 percent increase in May. The increase was largely due to a 20.3 percent increase in the prices of petroleum imports, which rose 9.3 percent in the previous month.

A Commerce Department report showed that the trade deficit narrowed to $26.0 billion in May from a revised $28.8 billion in April. Economists had been expecting the deficit to widen to $30.0 billion from the $29.2 billion originally reported for the previous month.

A Reuters and the University of Michigan report showed that the preliminary reading on the consumer sentiment index for July came in at 64.6 compared the final reading of 70.8 for June. Economists had been expecting a more modest decrease to a reading of about 70.0.

Later, President Barack Obama said he feels it is premature to unwind economic stimulus plans as he spoke after a what was termed a “very productive” G8 Summit in L’Aquila, Italy on Friday.

China says has proof Rio Tinto staff stole state secrets

SHANGHAI (AFP) - - China said Thursday it had evidence proving detained Rio Tinto staff stole state secrets, as the affair threatened to boil over into a diplomatic row with Australia summoning the Chinese ambassador.

Stern Hu, the Australian head of the Anglo-Australian mining giant’s Shanghai office, faces criminal charges for stealing state secrets on foreign countries’ behalf, Chinese foreign ministry spokesman Qin Gang said.

“Competent authorities have sufficient evidence to prove that they have stolen state secrets and have caused huge losses to China’s economic interest and security,” Qin told reporters.

Chinese authorities collected evidence against Hu before arresting him and other Rio Tinto staff on Sunday, Qin said. Shanghai authorities earlier confirmed the others were three of Hu’s Chinese colleagues.

The incident has cast a shadow over Australia’s relations with one of its largest trading partners, in which Rio Tinto plays a key role as a major supplier of iron ore and other raw materials to China’s growing economy.

The miner has led difficult talks with China over new iron ore contracts, which missed a key deadline at the end of June, and a month after it snubbed a major cash offer from China’s Chinalco.

The executives allegedly used improper methods, including bribery, to coax secrets from Chinese steel executives during the contract negotiations, according to reports in two Shanghai government-run news outlets.

China’s foreign ministry said the espionage allegations should be treated as an isolated case and that it did not want it to affect its important trade relationship with Australia.

“It’s improper to exaggerate this individual case or even politicise it, which will be no good to Australia,” Qin said.

Australia’s Mandarin-speaking Prime Minister Kevin Rudd rejected opposition calls Thursday for him to discuss the case with China’s President Hu Jintao.

“The key thing is not for politicians… to begin trying to politicise issues like this but rather let’s get on with the practical business of working with the very difficult case on the ground,” Rudd told reporters in Rome.

However, Australia’s foreign ministry announced that the acting Chinese ambassador, Hong Liang, had been called in on Thursday over the issue and that the lack of consular access to Hu was among the issues raised.

After the meeting, Chinese authorities said Australian diplomats could meet Hu on Friday, an Australian statement said.

Foreign Minister Stephen Smith earlier said he had seen no suggestion that Hu’s detention was linked to Rio’s fraught iron ore talks with Beijing or its decision to reject Chinalco’s offer.

Last month, the debt-laden miner turned down a 19.5-billion-dollar cash injection from Chinalco after deciding that rising commodity prices made a rights issue and joint venture with BHP Billiton more attractive.

The four Rio Tinto executives are being held by China’s secretive state security ministry, which handles counter-espionage operations.

In Beijing, police also arrested Tan Yixin — the head of iron ore trading at Shougang Group steel company, who had “close contact” with Hu — for suspected commercial crimes, the 21st Century Business Herald reported.

A Rio Tinto spokesman told AFP it was not giving out more information on the sensitive case, but the company indicated it had been taken by surprise.

“We are not aware of any evidence that would support such an investigation,” the company said in a statement.

Gold Rises Off Of Two-Month Low As Dollar Declines

Gold climbed slightly off a two-month low on Thursday, as the U.S. dollar gave back some of its recent gains against the euro and sterling, adding to the precious metal’s hedge appeal

August gold climbed to $916.20 an ounce, up $6.90 on the session. Prices reached as high as $918.90 an ounce after earlier hitting a low as $906.20 an ounce.

The dollar dropped to a weekly low against the euro after hitting a two-week high the day before. The greenback also moved into negative territory against the pound. Often, gold moves opposite the dollar because of the precious metal’s hedge appeal.

Despite rumors that the Group of Eight leaders meeting in Italy would discuss an alternative to the dollar as the world’s de facto reserve currency, there was no mention of the greenback in a draft declaration on the international monetary system released Thursday.

According to reports from L’Aquila, the Chinese called for a reformed reserve currency system but did not specifically mention the dollar.

On the economic front, a Labor Department report showed that jobless claims fell to 565,000 from the previous week’s revised figure of 617,000. Economists had been expecting a more modest decrease to 603,000 from the 614,000 originally reported for the previous week.

With the bigger than expected decrease, weekly jobless claims fell below the 600,000 level for the first time since January.

Later, the Commerce Department said wholesale inventories fell 0.8 percent in May following a revised 1.3 percent decrease in April. Economists had expected inventories to fall by 1.0 percent compared to the 1.4 drop originally reported for the previous month.

In other metal trading, silver for September delivery climbed 8.3 cents to $12.935 an ounce and copper jumped 7.85 cents to $2.159 per pound

On Wednesday, gold dropped $19.80 an ounce on the session. The metal fell as low as $904.80 an ounce and moved below a support level.

July 3 (Bloomberg) — China’s stocks fluctuated as energy producers gained on speculation power demand is recovering, while metals producers fell.

Datang International Power Generation Co. jumped 4 percent after the China Securities Journal said the nation’s electricity output gained in June, its first monthly advance since October. Jiangxi Copper Co. retreated 2.9 percent as a report showing U.S. employers cut more jobs than forecast in June dragged down commodities prices.

The Shanghai Composite Index fell 3.61, or 0.1 percent, to 3,056.64 as of 10:07 a.m., after changing direction at least four times. It’s up 4.4 percent this week as a government survey showed manufacturing expanded for a fourth month in June. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, declined 0.3 percent to 3,274.21.

“The U.S. jobs report raises the question about whether China’s recovery can be sustained, given that hope of bolstering growth through external demand in the second half looks slim,” said Li Jun, a strategist at Central China Securities Holdings Co. in Shanghai.

The Shanghai index has rebounded 68 percent in 2009, the world’s second-best performer, on evidence a 4 trillion yuan ($585 billion) stimulus plan and record lending is reviving the economy. The gauge lost 65 percent last year as the global recession curbed demand for the country’s exports. China is the world’s second-largest exporter.

Shares on the gauge trade at 29.6 times earnings, the most expensive since March 2008, weekly data compiled by Bloomberg show.

Power Demand

Datang International gained 4.1 percent to 8.61 yuan. China Shenhua Energy Co., the nation’s largest coal producer, climbed 2.8 percent to 32.70 yuan. Pingdingshan Tianan Coal Mining Co., the listed unit of China’s fifth-largest producer, gained 2.7 percent to 31.06 yuan.

China’s electricity output gained 3.6 percent in June, the China Securities Journal reported today, citing China State Grid Corp. Power output at the end of June rose 7 percent from a year earlier as warm weather increased demand for electricity, it said. Liu Xinfang, a State Grid press official, didn’t immediately answer calls to his office today seeking comment.

The news follows a report by the state-run Xinhua News Agency that power demand in the nation’s manufacturing hub of Guangdong rose in June.

Jiangxi Copper slid 1.7 percent to 32.89 yuan. Western Mining Co., China’s fourth-largest maker of zinc concentrate, dropped 1.6 percent to 15.24 yuan.