Commodities

     

 

 

 

 

 


 

I write this with sadness, still, at the news of the death of my friend Heinz Blasnik. He is better known by his nom de plume, Pater Tenebrarum, who published the economics blog Acting Man and wrote for many other financial sites.

I met Heinz twice, at his home in Vienna. He was a kind and gracious host, sending his driver to pick me up and serving Austrian delicacies for lunch. When I met him, he was struggling near the end of a long illness which was the result of a youthful adventure. Even so, he retained a benevolent sense of life, and a positive spirit.

But this is not why I wanted to write this. We were friends because we shared some ideas. Important ideas. Ideas about the nature of the world, and mankind, and how man can work together and coordinate their productive activities. Economics and business are my life, and Heinz was the same way.

What better basis for a friendship than sharing important values?

Heinz was deeply, passionately interested in helping people understand economics. I know not how much time he gave to this cause—unpaid, as blogs do not make money—but it was surely more than I spend. He engaged with those who were interested. Sadly, Austrian economics is not mainstream, though there are more than enough people to keep a teacher—or sensei—busy. He was willing to correspond with me, and I credit his articles and emails for helping shape my own views.

We did not always agree. If you put 3 economists in a room then you have at least 4 opinions. But even when not, he listened with benevolent intention and did not make it personal. It was always about the ideas. I think this is an important and uncommon virtue.

On one of my visits, we discussed life, the universe, and everything. And he told me a bit about the Austrian welfare state. Which led me to write The Service Economy. I have traveled around the world, and I have shared food and drink with friends in many countries. Yet that one conversation with Heinz stands out as interesting and important. I can only recall one other discussion with one other friend that led directly to me writing an essay.

I don’t think Heinz believed in Heaven, but I hope everyone will understand when I say this. I would look forward to a day—many years in the future, I hope—when I could meet Heinz for beers in Heaven, and continue our conversation where it left off in 2021.

Adieu Heinz.

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

     

 

 

Commodities as an Alternative

Our readers are presumably following commodity prices. Commodities often provide an alternative to investing in stocks – and they have clearly discernible seasonal characteristics. Thus heating oil tends to be cheaper in the summer than during the heating season in winter, and wheat is typically more expensive before the harvest then thereafter.

 

Silver: 1,000 ounce good delivery bars [PT]

 

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A Month with a Bad Reputation

A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance.

 

The road to October… not much happens at first – until it does. [PT]

 

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Positive Energy

By now, late September of 2018, it has become increasingly evident that something big is about to happen. What exactly that may be is anyone’s guess.  But, whatever it is, we suggest you prepare for it now… before it is too late.

 

Art auction energizer: Norman Rockwell’s portrait of John Wayne. You can’t go wrong shelling out top dollar for me, pilgrim, can you? [PT]

 

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The Biggest Crashes in History Happened in September and October

In the last installment of Seasonal Insights we wrote about the media sector – an industry that typically tends to perform very poorly in the month of August. Upon receiving positive feedback, we decided to build on this topic. This week we are are discussing several international markets that tend to be weak during September and will look at what drives this recurring pattern.

 

Mark Twain, a renowned specialist in how not to get rich, opines on dangerous months to invest in the stock market. We should mention that he didn’t have access to the Seasonax app. [PT]

 

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Data Interpretation Problems

Oddly enough, these days it has become more difficult to interpret positioning data. We get more granular data than before, such as e.g. the disaggregated commitments of traders reports (CoT – even if they are still released with a three day delay), but at the same time the goal posts in futures markets have shifted greatly. Former extremes in positioning have been left in the dust with the advent of QE (and the associated desperate “hunt for yield”) and the adoption of large scale systematic trading. Here is a glaring example illustrating the point:

 

Speculator net positions in crude oil futures: after decades in which net long positions rarely exceeded 100,000 contracts, a new post GFC era record has been set in the speculative position at 740,000 contracts net long in early February 2018.

 

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Regulated to Death

The price of gold fell $13, and that of silver $0.23. Perspective: if you’re waiting for the right moment to buy, the market now offers you a better than it did last week. If you wanted to sell, this wasn’t a good week to wait. Which is your intention, and why?

 

We are rather late posting Keith’s supply & demand update this week, so we felt we might as well add an updated chart of the divergences we recently discussed. This week gold has dropped quite a bit further, but the bullish divergences between gold and gold equities have stubbornly persisted. Such market behavior is virtually always meaningful (at least we cannot remember the last time when it hasn’t been). [PT]

 

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Chest Bumps

One of the more extraordinary things that investors have seen in living memory is unfolding at this precise moment. This goes for business leaders, money managers, veteran Wall Streeters, value investors, 401(k) holders, momentum traders, FX guys, gold bugs, technical gurus, chartists, pork belly speculators, quants, astrologists, Larry Summers, put option sellers, dweebs and geeks, millennial index fund enthusiasts, and everyone in between.

 

Pork belly speculators were among those waking up to a nasty surprise as China retaliated by imposing its own list of tariff duties. Soybean traders were also forced to rapidly adjust to an unexpected change in export fortunes (see further below). Farmers are presumably none too happy at this point. [PT]

 

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Contrarian Investment Opportunities in Natural Resources

Maurice Jackson of Proven and Probable has recently interviewed Sprott U.S. Holdings CEO Rick Rule, a well known specialist and “old hand” in the natural resource space. This is quite a wide-ranging and interesting interview, so we decided to present it to our readers. Below you find a summary and our comments on the main topics discussed, a video/podcast of the interview,  as well as a download link to a PDF file of the transcript for later reference.

 

Sprott US Holdings CEO Rick Rule

 

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Oil is Different

Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?

 

Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a few months at most. By contrast, gold inventories are in theory large enough to satisfy fabrication and industrial demand for 70 years (“in theory” because this is under the assumption that there is no monetary or investment demand for gold). This is in fact one of the reasons why gold is the money commodity. [PT]

Photo credit: Getty Images

 

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Crude Oil Market Structure – Extremes in Speculative Net Long Positions

On May 28, markets were closed so this Report is coming out a day later than normal. The price of gold rose nine bucks, and the price of silver 4 pennies. With little action here, we thought we would write 1,000 words’ worth about oil. Here is a chart showing oil prices and open interest in crude oil futures.

 

WTIC (West Texas Intermediate crude) price and futures open interest – the vast increase in OI was largely the result of a breathtaking surge in speculative buying. [PT]

 

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Meandering Prices

Prices rise and prices fall.  So, too, they fall and rise.  This is how the supply and demand sweet spot is continually discovered – and rediscovered. When supply exceeds demand for a good or service, prices fall. Conversely, when demand exceeds supply, prices rise.

 

Supply and demand (the curves usually shown in such charts are unrealistic, as bids and offers in the market are arranged in discrete steps). [PT]

 

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