Gold Stock Bull

The bull market in precious metals is not an easy one to ride. We believe that most investors should buy and hold, adding to their positions on dips. Trying to time the highs and lows is a bit like trying to read a Dali clock. Many of us were lured in by a beautiful technical set up and had the rug pulled out from underneath us. The oversight was partly that gold stocks hadn’t corrected enough, but moreso that they hadn’t corrected for long enough.

From the start of this bull market, there have been six major uplegs and six major corrections. The average upleg has been about 100% over an average 156 trading days. The average correction has been about 30% over 88 trading days. These are key statistics that every gold investor should internalize. The largest of the uplegs have been followed by corrections of about 35%. The May to June correction was a little shy of this benchmark, at only 31%. This is especially low considering that it followed the most powerful upleg to date. Still, the more glaring signal that the correction had not ended is that it only lasted for 23 trading days. So while the HUI was creating higher lows, forming an ascending triangle and breaking out above key resistance, there was still an underlying need for further correction.

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It wasn’t a big surprise to see the Fed leave rates unchanged and the dollar weaken as a result. What was surprising was that gold turned down on the news. The reason given was that the Fed’s decision signals that inflation isn’t a significant problem right now and gold is traditionally viewed as a hedge to inflation. Well, inflation is a funny thing to get your head around. The Federal Reserve lowered Total Fed Credit by $5.6 billion and the Treasury engineered a $2.3 billion drop in actual cash from the economy last week. Goodbye inflation, right?

Maybe not so fast. Let’s take a look at the Core CPI, which is so often quoted in the media. For the month of July, it was up 2.4% versus the same month last year. Not so bad, except for the government conveniently leaves out food and energy costs from this statistic. You can make charts and numbers give just about any result that you want, with a little ummm…. massaging. I should know, I’ve done exactly that for years in the corporate world. But a more accurate picture of inflation is given using the overall Consumer Price Index. For July, it jumped 4.1 percent compared with the same month last year. Now, the problem with such a number is that you have to subtract this number from GDP growth to get Real Growth for the economy. And if we use a number higher than 4%, suddenly we have negative real growth. Which in not-so-pleasant terms means: recession. We can’t go throwing that term around with the November elections so close. Combined with a 12% annual increase in food prices and a 7.2% annual fall in the purchasing power of the dollar, it is a fool’s move to look at the Fed leaving rates unchanged and assume inflation is not a problem.

Perhaps the gold market sniffed this absurdity because after the initial decline with the Fed news, it has since tacked on more than $13 and is sitting around $590. Increased demand from overseas and a weaker dollar versus the Euro are certainly main contributors to this move. But with 135 metric tonnes that could still be dumped on the market under the Washington Accord quota, prices are likely to remain rangebound waiting for a signal in either direction.

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Biodiesel is the name of a clean burning alternative fuel produced from domestic, renewable resources such as vegetable oils or other renewable resources. It can be made from soy or canola oil, waste cooking oil, and even animal fats. Biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel to create a biodiesel blend. It can be used in compressionignition (diesel) engines with no major modifications. Biodiesel is simple to use, biodegradable, nontoxic, and essentially free of sulfur and aromatics. Biodiesel can be distributed using today’s infrastructure, and its use and production are increasing rapidly. Fuel stations are beginning to make biodiesel available to consumers, and a growing number of transport fleets use it as an additive in their fuel.

Biodiesel is gaining popularity because it’s good for the environment and can be used in almost any diesel vehicle built in the past 10 years. The production of biodiesel is an industry in its infancy within the United States , even though the market for the alternative fuel has been a mainstay in Europe and South America for years. It is expanding rapidly all over the world due to growing concerns about levels of environmental pollution and limited supply of energy sources.

In 2000, biodiesel became the only alternative fuel in the country to have successfully completed the EPA-required Tier I and Tier II health effects testing under the Clean Air Act. These independent tests conclusively demonstrate biodiesels’ significant reduction of virtually all regulated emissions, and showed biodiesel does not pose a threat to human health. A US Department of Energy study showed that the production and use of biodiesel, compared to petroleum diesel, resulted in a 78.5% reduction in carbon dioxide emissions. Moreover, biodiesel has a positive energy balance. For every unit of energy needed to produce a gallon of biodiesel, 3.24 units of energy are gained. Many federal agencies, including the Department of Defense (DoD), are choosing to use biodiesel or biodiesel blends.

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