Baker Hughes Announces March 2013 Rig Counts

Baker Hughes Incorporated (NYSE:BHI) announced today that the international rig count for March 2013 was 1,268, down 7 from the 1,275 counted in February 2013, and up 76 from the 1,192 counted in March 2012. The international offshore rig count for March 2013 was 316, down 7 from the 323 counted in February 2013 and up 13 from the 303 counted in March 2012.

The average U.S. rig count for March 2013 was 1,756, down 6 from the 1,762 counted in February 2013 and down 223 from the 1,979 counted in March 2012. The average Canadian rig count for March 2013 was 464, down 178 from the 642 counted in February 2013 and down 28 from the 492 counted in March 2012.

The worldwide rig count for March 2013 was 3,488, down 191 from the 3,679 counted in February 2013 and down 175 from the 3,663 counted in March 2012.

Here is the March 2013 Rotary Rig Counts by country worldwide


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A Very Important Letter to Shareholders from Transocean RIG

If you own shares in Transocean make sure you read this entire release and make sure you vote. This is a very important vote......

Transocean (NYSE: RIG) today announced that it has commenced the mailing of proxy materials, including a WHITE proxy card and a letter from the Board of Directors, to the company's shareholders of record in advance of the company's 2013 Annual General Meeting ("AGM"), which will be held at 5 p.m. CEST, on May 17, 2013, in Zug, Switzerland. The Proxy Statement and Annual Report are also available through the company's website at http://deepwater.com/ar.

*    The Transocean Board of Directors unanimously recommends that the company's shareholders vote "FOR" a U.S. dollar denominated dividend of $2.24 per share, or approximately $800 million in the aggregate (based upon the number of currently outstanding shares), out of additional paid in capital.

*    The Transocean Board of Directors unanimously recommends that shareholders vote "FOR" the company's five experienced and highly qualified director nominees: Federico F. Curado, Thomas W. Cason, Steven L. Newman, Robert M. Sprague and J. Michael Talbert.

*    The Transocean Board of Directors unanimously recommends that shareholders vote "FOR" the granting of Board authority to issue shares out of the company's authorized share capital. This authority was originally granted at the May 2011 AGM and will expire on May 13, 2013.

*    Shareholders are encouraged to support the Board's recommendations by voting promptly using the company's WHITE proxy card.

*    The letter from the Board of Directors, which follows, discusses Transocean's highly qualified slate of director nominees and reiterates the reasons the proposed $2.24 per share dividend will maximize long term shareholder value. Furthermore, the letter addresses the importance of having the flexibility to pursue value-enhancing opportunities by granting the Board the authority to issue additional shares out of the company's authorized share capital. The Board currently has no plans to exercise this authority.

April 4, 2013....Dear Fellow Transocean Shareholders > Read the entire letter to shareholders


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EIA Weekly Natural Gas Update for April 4th

Marketed natural gas production in the Gulf of Mexico federal offshore region falls to 6% of national total in 2012. Continuing a long term trend of decline, the contribution of marketed production of natural gas from the Gulf of Mexico federal offshore region accounted for 6.0 percent of total U.S. marketed natural gas production (4.2 billion cubic feet per day (Bcf/d) in 2012, according to data published in the Energy Information Administration’s (EIA) Natural Gas Monthly. In contrast, in the period from 1997 to 2007, marketed production from these same waters provided, on average, over 20 percent (11.7 Bcf/d), of U.S. marketed production.




Among the contributing factors to this decline:

• Increasing amounts of domestic, on-shore production, primarily from shale gas and tight oil formations. In 2012, nearly 40 percent (over 26 Bcf/d according to Lippman Consulting, Inc.) of U.S. dry natural gas production came from production in shale plays, increasing over 20 fold from 2000 levels. In 2012, the two most productive shale plays were the Haynesville play in Louisiana and Texas, and the Marcellus play in Pennsylvania. In the Marcellus play, despite reduced drilling activity, production increased by almost 70 percent in 2012 over year ago levels. Increased drilling in tight oil plays like the Eagle Ford play in Texas has contributed to increased associated natural gas production. 

• Relatively low natural gas prices. Low natural gas prices in recent years have diminished the economic incentive for off shore natural gas directed drilling. However, relatively high crude oil prices continue to support oil directed drilling and the production of associated gas, particularly in deep waters. New large deepwater projects directed toward liquids development are projected to reverse the decline in natural gas production from the Gulf of Mexico in 2015, according EIA's Annual Energy Outlook 2013 Early Release.

The 2 Energy Sectors You Should Invest in This Year

Is Investing in Electric Cars the Best Way to Invest in Crude Oil?

The United States alone consumes 18.9 million barrels of oil every day, rain or shine. And China's appetite grows more ravenous by the minute, with daily consumption doubling from 5.5 million barrels in 2003 to nearly 9.8 million in 2011.

Aside from a brief downturn during the recession, global oil consumption has been moving inexorably higher.

Worldwide oil consumption passed its pre-recession 2007 peak in 2010 and continues to rise. It is projected to reach 90.2 million barrels per day this year. Meanwhile, the world's oil companies will only produce 90 million barrels per day.

In other words, demand will outstrip supply by 200,000 barrels per day, or by about 73 million barrels this year.

We can barely feed our energy appetite today. And we're getting hungrier. Per-capita consumption in China and India is still less than one-tenth that of the United States, but these growing middle classes are catching up fast. In fact, 18 million new cars hit the road in China last year -- compared with 14.5 million in the United States -- stretching oil supplies even thinner.



Meanwhile, most production grounds have been in a steady decline for decades. Future oil exploration activity will be focused in deep offshore basins, which are expensive to tap.

That's why I'm advising readers to invest in the "Oil of the 21st Century."

I call it this because no other precious resource in the world can do what it does. Businesses are willing to pay hundreds of millions a year for its unique qualities -- it is a key ingredient in a wide range of products, from pharmaceuticals to rocket fuel. But its real magic is that, pound for pound, this featherweight metal can store more electric energy than just about any other material.

I'm talking about lithium.

You see, lithium is the battery maker's best friend. Rechargeable lithium-ion batteries have twice the energy density of yesterday's outdated nickel-cadmium technology, making them indispensible in everyday products from digital cameras to portable video game consoles.

You've probably got some lithium within reach right now. If you own an iPad, iPod or iPhone, you definitely do.

But electronic gadgets aren't why I'm so excited by lithium.

The real action is in cars -- electric cars, to be specific.

President Barack Obama wants to put 1 million electric cars on the road by 2015, and 10 times that amount by 2018. The government is bankrolling the transition with some heavy incentive dollars.

GM is going electric with the Volt. Ford is planning a battery-powered car based on the Focus. And, of course, Toyota has the Prius... Honda the Insight... and Nissan the Leaf.

But car makers won't be the biggest winners from the craze for electric vehicles. Instead, I think there's another way to make even more money from the transition to battery power.

Unlike gold, silver and other metals, it is virtually impossible to invest directly in lithium. The Global X Lithium Exchange Traded Fund (NYSE: LIT), however, is the next best thing.

The fund's three largest positions, or roughly half its portfolio, is invested in companies engaged in lithium mining and refining. These companies have diverse business lines, so these aren't pure plays. But collectively, this trio accounts for the majority of the world's lithium production. The rest of the fund's assets are invested in a well rounded mix of battery makers.

Click here to get your FREE Trend Analysis for LIT

Risks to Consider: In many respects, this industry is still in its infancy. So it's difficult to say which technologies will emerge victorious and which will become historical footnotes. That means there will be some spectacular winners in this field, but also some big losers.


The 2 Energy Sectors You Should Invest in This Year

Don't Touch the Refiners Until You Understand a Few Things About Their Future

The refinery stocks are in the news, here is a great ThomsonReuters article that will give you a good perspective on how to approach trading the refiners. Obviously they are going down hard, have they hit bottom?

"Inland U.S. oil refiners stung by renewable energy credits"

By Krishna N Das and Swetha Gopinath April 3 (Reuters) - Landlocked U.S. oil refiners short on capacity to blend ethanol are bracing for a spike in costs, unable to export their way out of a sudden rise in the price of renewable energy credits needed to comply with government requirements.

CVR Energy Inc and HollyFrontier Corp, inland refiners with limited capacity to blend biofuels into the pipeline, are suffering from a jolt to investor confidence while stocks of their coastal peers continue a two year upward march.

Along with some East Coast refiners like PBF Energy Inc , they are at the sharp end of the uneven distribution of pain resulting from a hundred-fold surge in the cost of ethanol credits.

Refiners are caught between the U.S. ethanol mandate, which requires ever-higher volumes of ethanol to be blended into the domestic gasoline pool, and the limited amount of the corn-based fuel that some cars can safely run.

To offset the difference, refiners must either export gasoline to markets not requiring the blend or buy up ethanol credits that can satisfy government requirements without forcing higher volumes of ethanol into gasoline.

The price of these credits, or Renewable Identification Numbers (RINs), has spiked to more than $1 in recent weeks from 1 cent in December due to concerns of a looming shortfall.

That price rise may prove a serious drag on the bottom line of CVR Energy, for example, whose refineries in Oklahoma and Kansas have neither easy access to foreign markets nor integrated systems to blend ethanol into gasoline themselves.

"If you are in the middle of the country with no access to waterborne markets, and don't own any blending component of the value chain, it could be a disadvantage," said John Williams, investment analyst at T. Rowe Price in Baltimore , Maryland.

The ethanol mandate was conceived during the administration of President George W. Bush, when domestic gasoline demand was projected to grow steadily, increasing the need for foreign oil.

Since then, however, the U.S. shale boom has seen domestic production boom, while gasoline demand has been in decline.

Refiners are therefore obliged to blend more ethanol into a smaller gasoline pool. Older cars face possible engine damage if fuel contains more than 10 percent ethanol, creating a "blend wall" that refiners are loath to exceed for fear of incurring liabilities.

The ethanol requirement is set to grow every year until 2022. Many oil companies have complained about the mandate, and warned that more costly RINs will drive up prices at the pump. "This failed federal program is already costing consumers and taxpayers dearly," said Tina Barbee, spokeswoman for Tesoro Corp, the largest independent refiner on the West Coast.

West Coast refiners are better placed to export than their East Coast peers, which typically refine imported oil. Tesoro's strong retail presence has also helped shield it from higher RIN costs, said Raymond James & Associates analyst Stacey Hudson. "(East Coast refiner) PBF, on the other hand, does not have a retail presence and that could be seen as a disadvantage for generating RINs," she said. "If you produce more fuel for domestic consumption than you blend, you will be short on RINs." PBF declined to comment.

Its shares have fallen 11 percent in the past month. Tesoro's stock has fallen less - 3 percent - but is still underperforming shares in companies with refineries on the Gulf Coast , which export more gasoline.

Natural Hedge

The Thomson Reuters U.S. Oil & Gas Refining and Marketing index, which includes shares of almost all U.S. refining companies, has risen 28 percent over the past two years as cheap shale crude has propped up margins.

Refiners in the U.S. heartland have seen the benefits of easy access to rising volumes of relatively cheap domestic crude. But CVR and HollyFrontier have started to buck this trend; both stocks are down 10 percent in the last month.

Macquarie Research cut its ratings last month on both companies. RIN pricing, it said, was a big enough issue to warrant longer-term concerns.

"The refiner stocks have performed exceptionally well for two years running, thus we recommend taking profits on those with the greatest RIN risks," Macquarie analysts said in a note.

Refiners with blending facilities to help offset RINs risk, or which can export more gasoline, are seen as better protected. Marathon Petroleum Corp's stock has risen 6 percent and Phillips 66 is up 9 percent in the last month.

"They have a natural hedge through that (blending), and they also have access to export markets through their Gulf Coast operations," said Williams, whose firm owns Phillips 66 shares.

Though the company has not explicitly linked its expansion to RINs, Phillips 66, the refining company spun out from ConocoPhillips, has said it will have the infrastructure needed to raise exports by about 40 percent within three years.

Material Costs

Leading independent refiner Valero Energy Corp -- also in the T. Rowe Price portfolio -- says it expects its RIN-related costs to jump to as much as $750 million this year from $250 million in 2012.

Unlike CVR and HollyFrontier, Valero has the option of raising exports from its Gulf Coast refineries. But the company is also a significant spot seller of unblended gasoline in the United States ; its stock is down 7 percent in the last month. Macquarie said the large volumes of unblended gasoline in the company's Gulf Coast system, which it estimated at 2.2 billion to 2.3 billion gallons in fiscal 2013-14, threatened to overshadow its exports.

Further inland, meanwhile, CVR Energy is limited in what it can export. The company, controlled by billionaire investor Carl Icahn, said in a regulatory filing last month that its RIN costs were likely to be "material".

"There's no way that the RINs cost will not get passed on," Chief Executive Jack Lipinski said on a post-earnings conference call. "Eventually somebody has to pay it." At $1 per gallon, RIN credits adds 10 cents per gallon to gasoline prices, which cost about $3.68 per gallon on an average for March, compared with $3.39 in January, according to the U.S. Energy

Ultimately, much is likely to depend on how successful those refiners short on RINs will be in passing on costs to consumers. Valero spokesman Bill Day said: "We expect to see prices of gasoline go up across the country." Bradley Olsen, analyst at investment bank Tudor Pickering & Co, said comparatively high gasoline prices on the East Coast were at least helping refiners there to balance their RIN costs.

"The U.S. market still needs close to 9 million barrels a day of gasoline. The short term solution is to export to avoid the RIN obligation but, ultimately, increased exports reduce the supply domestically," he said. "You are going to see prices rally."

Posted courtesy of ThomsonReuters


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Recent Action in Silver ETFs Is Bad News for Precious Metals Bears

From Author Jeff Clark, Senior Precious Metals Analyst.....

Two weeks ago we looked at the difference between gold ETF outflows vs. physical gold purchases, and showed that most sales were coming from the former while aggressive buying was coming from the latter.


This week we examined the same data for silver – and discovered a rather striking trend. Not only are silver ETFs seeing no net outflows, their holdings are increasing. Bearish investors who treat the two precious metals as being the same, interchangeable thing, and sell silver along with gold are at risk of missing the boat.

Here's how holdings in SLV, the world's largest silver ETF, compare to those of GLD…

The divergence between gold and silver funds is clearly evident. As of March 28, SLV holdings stand at 344,128,478 ounces, up 5% so far this year and just 7% below 2011's record high.

It's not just SLV. As a group, silver exchange-traded products (ETPs) have seen their holdings rise for four consecutive months.

Why the stark divergence between the two precious-metals funds?

As most readers know, silver has a dual nature, serving as both a precious metal and an industrial metal. As a precious metal, it's a store of value like gold – but since roughly half of its use is devoted to various industrial applications, its performance has a strong correlation to economic growth. And since most mainstream analysts are bullish on the global economy, the current surge in silver ETFs is likely a result of this optimism. After all, if you see economic recovery ahead, industrial demand for the metal will grow and the price would be expected to rise.

Further, these massive inflows are occurring at a time when the silver price is mostly flat, whereas the previous peak in holdings took place when the price was soaring (spring 2011). Here's a picture of SLV holdings since January 2012, along with the silver price.

What's interesting is that the increase in SLV holdings has not had a significant impact on silver's price – yet. Since the price usually receives a boost when industries start buying more of it, many of these "paper" buyers are likely adding silver in anticipation of economic recovery, the very reason others are selling gold.

Let's take a look at physical demand.

As with gold, buyers of physical silver tend to have a long-term investment horizon and buy mostly from a currency standpoint. With prices near the bottom of their 22-month range, many investors continue to see opportunity: January sales of American Eagle silver bullion coins spiked to an all-time record of 7.5 Moz, and February's demand was 3.4 Moz, up 126% from last February's sales of 1.5 Moz. Cumulative silver coin demand for the first two months of this year already hit 10.87 Moz, a full third of total coin sales in 2012.

You can see that silver is being sought by both paper and physical buyers.

Whether it's mainstream investors buying in anticipation of economic recovery or physical buyers loading up due to currency concerns, investors collectively see big potential for silver.

Investor Implications: Is Silver a No-Lose Proposition?

 

It's a simplistic conclusion but not necessarily inaccurate: silver rises if the economy improves and industrial demand grows – or it rises if the world's major currencies continue to be debased, regardless of whether the economy is on the mend. Two different reasons, the same investment solution.

What if we get both outcomes: a robust economy and high inflation? That, of course, would be music to the ears of silver owners... the demand from industry strains supply, while bullion owners refuse to sell. Prices would go ballistic.

Does this mean silver is a no-lose proposition? Of course not. No investment comes without risk. An outright depression would be destructive to industrial demand. Roughly two-thirds of silver is used in industry and jewelry, so Doug Casey's Greater Depression could severely impact the biggest portions of current demand. The same events would increase monetary demand for silver, but the two trends may not have equal weight on the price of silver at the same time. We thus wouldn't make silver our sole investment, but we see a lot of upside in the metal under current market conditions.

At the end of the day, we're more inclined to buy silver for the same reasons we buy gold. While a case can be made for an improving economy, there's an overwhelming one already built for government money-printing to result in a massive loss of purchasing power, and that argues for seeking the safe haven of precious metals – both of them.

Don't miss this opportunity: Prices are low right now, and that makes it time to buy.

It's an even better time to buy gold and silver producers – especially select junior mining companies. Right now, the sector is so badly beaten down that even the best-of-the-best outfits are selling at discounts of 50% or more, giving you a rare opportunity to get in at the bottom of what could be the next great investment bubble.

To help you more fully appreciate the magnitude of this opportunity – and to give you concrete investment strategies – some of the world's top natural-resource speculators and economic minds will appear in a special, online video event on April 8, titled Downturn Millionaires. They include: contrarian investment legend Doug Casey; Agora Inc. publisher Bill Bonner; Sprott US Holdings Chairman Rick Rule; Mauldin Economics Chairman John Mauldin; and Casey Research Chief Metals and Mining Investment Strategist Louis James.

The event is free and is a must-see for serious investors. Get more information and register today.


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The Chess Game of Capital Controls

From Jeff Clark, Senior Precious Metals Analyst

The best indicator of a chess player's form is his ability to sense the climax of the game.

–Boris Spassky, World Chess Champion, 1969-1972

You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.


Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?

You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?

Pawn to A3

On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon – one of the original reasons Germany had for storing its gold outside the country – the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.

The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).

Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall – they can't see the bigger implications and frequently miss the forest for the trees.

Check

What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad – it defeats the purpose of owning gold.

But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)
Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."

Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.
We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.

Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.

And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.

Checkmate

If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?
Remember, India keeps tinkering with ideas like this already.

What this means for you and me is that moving gold outside your country – especially if you're a US citizen – could be banned.

Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.

None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.

The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.

Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.

The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller.

Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.

If you're moved to take action, know that you're not alone. It's critical that you take these first steps now, while you still can. The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves. You only have to see the next two moves to "win" this game. I suggest making those moves now before your government declares checkmate.

There's another "great game" when it comes to the precious metals market: the junior mining sector. The truth is, these stocks aren't for every investor – junior miners are more volatile than any other stock on Earth. However, for those who can stomach sudden price swings and are willing to bet against the crowd, right now junior explorers are offering the profit opportunity of a lifetime.

If you've ever wanted a realistic shot at making a fortune, you owe it to yourself to sign up for the upcoming Downturn Millionaires free online video event. It will feature famous speculators, including Doug Casey, Rick Rule, and Bill Bonner, who will detail how everyday investors can leverage junior miners to fantastic profits… just as they have done time and again over the years. Get the details and sign up now.


The 2 Energy Sectors You Should Invest in This Year

 

Gold vs. S&P 500 – Where is the Value?

This past week we received the final 4th Quarter GDP number which came in at 0.39%. The total 4th Quarter growth was terrible, plain and simple. Based on the performance in the equity markets that we have seen thus far in the 1st Quarter of 2013 investors would expect strong GDP growth. However, the only thing spurring stock market growth is the constant humming of Ben Bernanke’s printing press.

The real economy and the stock market are no longer strongly correlated. Essentially, they are meaningless. How do you evaluate risk when Treasury linked interest rates are artificially being held down by the Federal Reserve? How do you evaluate earnings growth estimates when most government based statistics are manipulated or “smoothed” to perfection?

My final argument to anyone who is a true believer that the stock market is representative of the economy is a very simple premise. If the stock market is the economy, how does the stock market evaluate small business earnings growth when most small businesses are not publicly traded? It is a simple question, but I have yet to find a sell side analyst that can work around it with facts......Read More.



Here's 2 Energy Sectors You Should Invest in This Year

Ignore Banks' Bearish Statements on Gold

By Jeff Clark, Senior Precious Metals Analyst

Goldman Sachs has lowered its gold price projections and says the metal is headed to $1,200. Credit Suisse and UBS are bearish. Citigroup says the gold bull market is over.

So I guess it's time to pack it in, right?

Not so fast. As we've written before, these types of analysts have been consistently wrong about gold throughout this bull cycle. Another reason to disagree, however, is history; we've seen this movie before. In the middle of one of the greatest gold bull markets in modern history, the one that culminated in the 1980 peak, gold experienced a 20 month, one way decline. Every time it seemed to stabilize, the bottom would fall out again. From December 30, 1974 to August 25, 1976, gold fell a whopping 47%.

1976 had to be a tough year for gold investors. The price had already been declining for a year – and it just kept on sinking. Since that's similar to what we're experiencing today, I wondered, What were the pundits were saying then? I wanted to find out.

I enlisted the help of two local librarians, along with my wife and son, to dig up some quotes from that year. It wasn't easy, because publications weren't in digital form yet, and electronic searches had limited success. But we did uncover some nuggets I thought you might find interesting.

The context for that year is that the IMF had three major gold auctions from June to September, dumping a lot of gold onto the market. Both the US and the Soviet Union were also selling gold at the time. It was no secret that the US was trying to remove gold from the monetary system; direct convertibility of the dollar to gold had ended on August 15, 1971.

The public statements below were all made in 1976. You'll see that they aren't all necessarily bearish, but I included a range to give a sense of what was happening at the time, especially regarding the mood of the gold market. I think you'll agree that much of this sounds awfully darn familiar. I couldn't resist making a few comments of my own, too.

To highlight the timing, I put the comments into a price chart, pinpointing when they were said relative to the market. Keep in mind as you read them that the gold price bottomed on August 25, and then began a three-and-a-half year, 721% climb…

[1] "For the moment at least, the party seems to be over." New York Times, March 26.

[2] "Though happily out of the precious metal, Mr. Heim is no more bullish on the present state of the stock market than any of the unreconstructed gold bugs he's had so much fun twitting of late. He's urging his clients to put their money into Treasury bills." New York Times, March 26.

Me: These comments remind me of those today who poke fun at gold investors. I wonder if Mr. Heim was still "twitting" a couple years later?

[3] "'It's a seller's market. No one is buying gold,' a dealer in Zurich said." New York Times, July 20.
Turns out this would've been an incredible buyer's market – but only for those with the courage to buy more when gold dropped still lower before taking off again.

[4] "Though the price recovered to $111 by week's end, that is still a dismal figure for gold bugs, who not long ago were forecasting prices of $300 or more." Time magazine, August 2.
The "gold bugs" were eventually right; gold hit $300 almost exactly three years later, a 170% rise.

[5] "Meanwhile, the economic conditions that triggered the gold boom of 1973 through 1974, have largely disappeared. The dollar is steady, world inflation rates have come down, and the general panic set off by the oil crisis has abated. All those trends reduce the distrust of paper money that moves many speculators to put their funds in gold." Time magazine, August 2.

This view ended up being shortsighted, as these conditions all reversed before the decade was over. Does this sound similar to pundits today claiming the reasons for buying gold have disappeared?

[6] "Our own predictions are that gold will go below $100, with some hesitation possible at the $100 level." As stated by Mr. Heim in the August 19 New York Times.

Yes, this is the same gentleman as #2 above. I wonder how many of his clients were still with him a few years later?

[7] "Currently, Mr. LaLoggia has this to say: 'There is simply nothing in the economic picture today to cause a rush into gold. The technical damage caused by the decline is enormous and it cannot be erased quickly. Avoid gold and gold stocks.'" New York Times, August 19.

You can see that these comments were made literally within days of the bottom! Take note, technical analysts.

[8] "'Gold was an inflation hedge in the early 1970s,' the Citibank letter says. 'But money is now a gold-price hedge.'" New York Times, August 29.

Wow, were they kidding?! This reminds me of those dimwits journalists who said in 2011 to not invest in gold because it isn't "backed by anything."

[9] "Private American purchases of gold, once this was legalized at the end of 1974, never materialized on a large scale. If the gold bugs have indeed been routed, special responsibilities fall on the victorious dollar." New York Times, August 29.

The USD's purchasing power has declined by 80% since this article declared the dollar "victorious."

[10] "Some experts, with good records in gold trading, declare it is still too early to buy bullion." New York Times, September 12.

Too bad; they could've cleaned up.

[11] "Wall Street's biggest brokerage houses, after having scorned gold investments during the bargain days of the late 1960s and early 1970s, made a great display of arriving late at the party." New York Times, September 12.

No comment necessary.

[12] "He believes the price of bullion is headed below $100 an ounce. 'Who wants to put money over there now?'" As stated by Lawrence Helm in the New York Times, September 12.

The price of gold had bottomed two weeks before, making the timing of this advice about the worst it could possibly be.

[13] Author Elliot Janeway, whose book jacket states, "Presidents listen to him," was asked by a book reviewer about his preferred investments. He writes: "Then, gold and silver? He likes neither. In fact he writes: 'Any argument against putting your trust in gold, and backing it up with money, goes double for silver: silver is fool's gold.'" New York Times, November 21.

Mr. Janeway ate his words big-time: from the date of his comments to silver's peak of $50 on January 21, 1980, silver rose 1,055%!

[14] "Mr. Holt admits that 'in 1974, intense speculation caused the gold price to get too far ahead of itself.'" New York Times, December 19.

So, anything sound familiar here? Yes, it was a brutal time for gold investors, but what's obvious is that those who looked only at the price and ignored the fundamentals ended up eating their words and dispensing horrible advice. Investors who followed the "wisdom of the day" missed out on one of the greatest opportunities for profit in their lifetimes.

I was pleased to learn, though, that not all comments were negative in 1976. In fact, in the middle of the "great selloff," there were those who remained stanchly bullish. These investors must've been viewed as outliers – they, much like some of us now, were the contrarians of the day.

Also from 1976…

• "Many gold issues, in fact, are down 40 percent or more from their highs. Investors who overstayed the market are apparently making their disenchantment known. The current issue of the Lowe Investment and Financial Letter says, 'We are showing losses on our gold mining share recommended list… but keep in mind that these shares are for the long-term as investments.'" New York Times, March 26.
  
  Sounds like what you might read in an issue of a Casey Research metals newsletter..

• "The time to buy gold shares," [James Dines] declares, "is when there is blood in the streets." New York Times, September 12.
  
  If you glance at the chart above, Jim's comments were made within two weeks of the absolute low.

• "We're recommending to clients that they hold gold and gold shares," [C. Austin Barker, consulting economist] says. "The low-production-cost mines in South Africa might be interesting to buy for the longer term because I see further inflation ahead." New York Times, September 12.
  
  Investors who listened to Mr. Barker ended up seeing massive gains in their gold and gold equity holdings.

• "The probability of runaway inflation by 1980 is 50%... In light of this, the only safe investments are gold, silver, and Swiss francs,'" said the late Harry Browne on November 21 in the New York Times.
   

• "In the longer run, [Jeffrey Nichols of Argus Research] believes gold's price trend 'is much more likely to be upward than downward.'" New York Times, December 19.
  
  The "longer run" won.

• "'I think the intermediate outlook for gold is a period of consolidation and a bit of dullness,' says Mr. Werden. 'However, six or nine months from now, we could see renewed interest in gold.'" New York Times, December 19.
  
  He was right; within nine months gold had risen 13.5%.

• "Mr. Holt offers some advice to investors who are taking tax losses on their South African gold shares – some of which are selling at just 30 to 35 percent of their peak prices in 1974. 'If leverage has worked against you on the way down,' he reasons, 'why not take advantage of it on the way up?'" New York Times, December 19.
  
  Solid advice for investors today, too.

• "What's his [Thomas J. Holt] prediction for the future price of gold? 'A new high, reaching above $200 an ounce, within the next couple years.'" New York Times, December 19.
  
  His prediction was conservative; gold reached $200 nineteen months later, by July 1978.

It's clear that there were positive "voices in the wilderness" during that big correction, and as we all know, those who listened profited mightily.

There were other interesting tidbits, too. For example, gold stocks had been performing so poorly for so long that some advisors suggested a strategy we also hear today…

• "It is probably too late to sell gold shares, the stock market's worst-acting group these days, except for one possible strategy: selling to take a tax loss and switching into a comparable gold security to retain a position in the group." New York Times, September 12.

Even back then, it was widely known that gold often bucks the trend of the broader markets…

• "You might put a small portion of your money into gold shares and pray like the dickens that you lose half of it. In that way, chances are that if gold shares go down, the rest of your stock portfolio will go up." New York Times, September 12.

Gold miners provided critical revenue and jobs, just like today. From the August 2 issue of Time magazine…

• "South Africa, the world's largest gold producer, is being hurt the most. The price drop will cost it at least $200 million in potential export earnings this year."

• "Layoffs at the gold mines would make it even worse – the joblessness could intensify South Africa's explosive racial unrest."

• The Soviet Union, the world's second-largest gold producer, is feeling the price drop, too. The Soviets depend on gold sales to get hard currency needed to buy US grain and other imports."

Gold was also used as collateral…

• "The international gold market was also roiled yesterday by a report by the Commodity News Service that Iran was negotiating to lend South Africa roughly $600 million, predicated on a collateral of 6.25 million ounces of gold."

And just like today, there were plenty of stupid misguided US politicians: From the New York Times on August 27:

• "The drop in gold bullion prices from $126, which was the average at the first IMF auction June 2, provoked the Swiss National Bank to attack Washington's attitude toward the metal as 'childish.' Aside from the estimated $4.8 billion of gold reserves held by Switzerland, bankers there advocate some role for the metal as a form of discipline against unrestricted printing of paper money."

That last statement from the Swiss bankers is hauntingly just as true today.
Last, you know how the government in India has been tinkering with the precious-metals market in its country? And how it's led to smuggling? From the New York Times on August 27:

• "India announced it was resuming its ban on the export of silver. India is believed to have the largest silver hoard and the government there freed exports earlier this year as a means of earning taxes levied on overseas sales. However, most silver dealers minimized the significance of India's move yesterday. As one dealer explained, 'Smuggling silver out of India is so ingrained there that the ban will have no effect on the flow. It never has. Indian silver will continue to ebb and flow into the world market according to price.'"

So what's the difference in mood today vs. the mid-1970s? Nothing! This shows that the same concerns, fears, and confusion we have now existed at a similar point in the gold market then. There were also those who saw the big picture and stayed vigilant. Virtually every comment made in 1976 could apply to today. Keep in mind that most of the statements above are from two publications only; there are undoubtedly many more similar comments from that year.

The obvious lesson here is that patience won out in the end. It took the gold price three years and seven months to return to its December 1974 high. It only took another 18 months to soar to $850. Today, that would be the equivalent of gold falling until June this year, and not returning to its $1,921 high until April, 2015. It would also mean we climb to $6,227 and get there in November, 2016. Could you wait that long for a fourfold return?

This review of history gives us the confidence to know that our gold investments are on the right track. I hope you'll join me and everyone else at Casey Research in accepting this message from history and staying the course.

So, what will your kids or grandkids read in a few decades?

• "Buy gold. It's going a lot higher." Jeff Clark, Casey Research, March 24, 2013.

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To say the precious metals market is in turmoil would be an understatement. Gold has dropped 3% in the last year, while gold stocks have been completely decimated, even strong firms with outstanding projects are down 50% or more.

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